REITs In Germany? – Everything You Need To Know (2024)

Based on the user's request, it seems that they are interested in learning about German REITs (Real Estate Investment Trusts). They have provided an article that discusses the concept of REITs and the specific regulations that apply to German REITs. The user is seeking information about the benefits and downsides of investing in German REITs.

Before providing a detailed response, let's review the search results to gather relevant information:

1. Investopedia - Real Estate Investment Trust (REIT):

   • This source provides a comprehensive overview of REITs, including their definition, types, benefits, and downsides. It also explains the regulations and requirements for REITs in different countries, including Germany.

2. GermanReal.Estate - What Is A REIT (Real Estate Investment Trust)?:

   • This article specifically focuses on German REITs and discusses the rules and limitations imposed by German REIT law. It also highlights the benefits and downsides of investing in German REITs.

Now, let's proceed with the response, keeping in mind the user's level of knowledge and the information provided in the search results.

Introduction to REITs and German REITs

REITs, or Real Estate Investment Trusts, are real estate companies that pool funds from investors to create portfolios of real estate properties. They offer individuals an opportunity to invest in real estate without the need for a large down payment or direct property ownership. While REITs are more common in the United States, they also exist in Germany, albeit with certain limitations imposed by German REIT law [[1]] [[2]].

Rules for German REITs

German REITs are subject to specific rules outlined in the German REIT law. These rules are designed to regulate the activities and investments of REITs in Germany. Here are some key regulations:

1. Types of Properties: German REITs can invest in commercial properties, infrastructure, and plots, but they are prohibited from investing in residential properties built after 2007. This restriction aims to prevent further increases in residential rents [[2]].

2. Earnings and Assets: At least 75% of a German REIT's earnings and assets must come from real estate investments. Real estate-related activities, such as construction, are not allowed for REITs in Germany. Mortgage REITs, however, can earn interest from providing mortgages [[2]].

3. Property Trading: German REITs are not permitted to trade properties frequently. The law requires them to focus on passive real estate management. They can make small changes to their property portfolio every 5 years or a complete change every 10 years. Deviating from these limits may result in the loss of REIT status [[2]].

4. Publicly Traded Companies: All German REITs must be publicly traded companies. Private REITs are not recognized under German REIT law [[2]].

5. Special Purpose Vehicles (SPVs): If a special purpose vehicle is set up to hold a real estate portfolio, it must be transferred to a publicly traded company (AG or SE). This process can be time-consuming and costly [[2]].

6. Leverage Limit: German REITs are limited to a maximum leverage of 45%. They must provide 55% of the equity themselves, which restricts their performance compared to investors who can leverage up to 100% with a mortgage [[2]].

7. Distribution and Ownership: No single investor is allowed to hold more than 10% of the outstanding REIT shares, and at least 15% of the shares must be distributed among a large number of investors. These regulations aim to ensure a broad distribution of ownership [[2]].

Benefits and Downsides of Investing in German REITs

Investing in German REITs comes with both benefits and downsides. Here are some key points to consider:

Benefits:

• Passive Income: REITs pay out a significant portion of their taxable profits as dividends, providing investors with a regular stream of passive income [[2]].
• Tax Advantage: REITs enjoy a 0% corporate tax rate as long as they distribute 90% of their taxable profits to shareholders. This can be advantageous compared to regular companies or special purpose vehicles (SPVs) [[2]].
• Liquidity: German REITs are publicly traded, making them as liquid as stocks or ETFs. Investors can buy and sell REIT shares more easily compared to selling a physical property [[2]].

Downsides:

• Limited Capital Appreciation: Due to the high dividend payout ratio of 90%, German REITs have limited funds available to grow their real estate portfolios. This can impact the potential for capital appreciation [[2]].
• Capital Gains Tax: Investors need to pay the German 25% capital gains tax on profits made from investing in REITs, reducing overall returns [[2]].
• Volatility: REITs are subject to the volatility of the stock market, which can impact their performance. They tend to be more volatile compared to direct real estate investments [[2]].

Conclusion

Investing in German REITs can be a viable option for individuals looking to invest in real estate without the need for significant capital or direct property ownership. However, it's important to consider the specific regulations and limitations imposed by German REIT law. These regulations can impact the types of properties that can be invested in, the level of leverage allowed, and the potential for capital appreciation. Assessing your personal financial strategy and investment goals is crucial when deciding whether to invest in German REITs or explore alternative options [[2]].

I hope this information provides you with a better understanding of German REITs and helps you make an informed decision. If you have any further questions, feel free to ask!