Foreign REITs Offer New Opportunities
06/12/2007 12:00 am EST
Vivian Lewis, editor of Global Investing, says more and more countries are opening their doors for Americans to invest in real estate abroad.
Your editor attended the National Association of Real Estate Investment Trusts’ (NAREIT) annual REIT Week gathering of real estate investment professionals, mainly to learn more about what is happening overseas.
Unlike John Kriz, managing director of Moody’s, I do not feel that foreign property is “only of interest to philatelists and yachtsmen.” For whatever it is worth, given the potential problems in raising real estate money in the US today, I was not the only one seeking to go international, to judge from the questions at the sessions I attended.
Brushing off the interest in [overseas real estate investing] as focused on high-risk emerging markets, something of the NAREIT line this year, is self-serving and not likely to fool shrewd investors.
Let me start off with the bad news. The most obvious place to diversify to, for retail investors, is out of the question. The new British law allowing UK real estate investment trusts imposes a 22% withholding tax on foreign purchases. This really cannot be recuperated except by US institutions, and therefore it makes British REITs a poor choice for us.
Existing foreign REIT platforms conform to US tax rules (allowing the dividend to be paid gross, after which the investor makes his own contribution to Uncle Sam.) The REITs, which meet the bill, are from Canada, Australia, Singapore, France, and the Netherlands. .
Last month new REIT laws based on the US structure were signed into law in Germany. Now Italy ratified laws to establish REITs coming in July. They are called Societa d’Investimento Immobiliare Quotate (SIIQ) and meet international accounting standards.
Troubled Spanish real estate market operators also want a REIT law. In the wake of the US sub-prime crisis, a property group, Astroc Mediterraneo, collapsed in Spain, which promptly pulled down the rest of the market. Astroc says it is raising new money in the US, Brazil, and Mexico, which we would not spring for. But a Spanish property REIT, against this gloomy background, may be a good way to go.
Barclays Global Investors, which creates iShares exchange-traded funds, is starting a group of ETFs tracking various US REIT sub-indexes managed by FTSE (a joint venture of The Financial Timesnewspaper and the London Stock Exchange): residential, industrial/office, retail and mortgage, [as well as] a 50-stock index. The model will probably go international at some point, which could provide an interesting new Global Investing idea when it comes.