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Work on the Polish REIT is protracted. The bill raises a lot of controversy

Robert Szczepanek, legal counsel
Causa Finita

17 January 2017

Work on the Polish REIT is protracted. The bill raises a lot of controversy

In spite of the earlier announcements, the rulers have failed to pass the real estate rental companies act so that it entered into force at the beginning of January this year. Maybe this is good, because as showed by the pending public consultations, the bill raises a lot of controversy.

First of all, it is said that the bill does not require REIT shareholders dispersion (i.e. free-float). As a result, there is concern that the exemption from CIT will be available for a company which possesses shares that are not subject to real trading, which will be - in consulting entities’ opinions - a source of potential tax fraud. Further, a lot of comments and questions relate to REIT share capital (according to consulting entities’ opinions, it is too high), opportunities for REIT to run other activities, such as development, the permissible debt of REIT or an associated obligation to pay dividends. It should be also noted that REIT is an ideal mechanism for obtaining equity and ensuring liquidity in trading assets for a developer. Therefore, it is difficult to suspect that some developers deliberately renounce from it so just to get relief from the corporate income tax (CIT).

REIT should be considered primarily in terms of stock market investors’ opinions who a certain percentage of their fund would like to invest in real estate. Above all, such investors will be focused on whether the shares of a particular REIT promise for stable growth and whether they will pay dividends regularly. Therefore, there is the greatest worldwide demand for the shares of such REIT which a real estate portfolio is so attractive that it provides an appreciation of assets over time, diversified, with a reasonable lease policy, professionally managed, and with a moderate ratio of debt to assets value.

Analysing the legislative process, it seems quite incomprehensible why the bill excludes the possibility for REIT to run the activity in the housing sector. In most countries, where REIT is available, it can engage in activities in this sector, and in the case of Poland, the market of apartments for rent has a growing trend. Moreover, we do not know why the Polish REITs would not be able to run a loan and investment activity on the basis of REIT mortgage. It also seems that the matter of industries in which REIT could operate is very underdeveloped. Despite the hotels settled, how to treat, for example, renting of billboards or areas for mobile phone masts?

Whatever we say about the bill of the real estate rental companies act, it is good that there is any work done to introduce these institutions to the legal system at all. Certainly, they will increase the safety and convenience of investing in commercial real estates, and therefore, cause the influx of new market investment funds.

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