This would see property companies – from the largest Real Estate Investment Trust (REIT) down to modest family firms – face massive administration costs, reduced investor returns and could force smaller real estate companies out of business.
It could also have other knock-on effects on the industry. Emerging EU regulation on derivatives will also apply to anyone caught by the AIFM Directive – causing up to 65bn EUROs of “collateral damage” to the sector (see notes to editors below).
The warning came despite a series of key concessions won by the BPF, working with the UK government and other industry groups, which should mean that property companies and joint ventures will be excluded. Property funds will still be included within the AIFM, as the EU intended.
Peter Cosmetatos, finance director at the British Property Federation, said: “After months of frantic lobbying, we have secured an exemption for ‘holding companies’ which should confirm that most corporate groups are outside its scope. We also have a clarification that joint ventures are not intended to be caught by the Directive. These are great successes, reflecting the efforts of the UK government as well as persistent lobbying by the British Property Federation.
“But it could all still go horribly wrong. Adoption of the Directive is not the end of the road. Many vital aspects of the new regulatory framework were so politically or technically challenging that the Directive did not really deal with them. Among those is the status of corporate property groups and of joint ventures.
“The position remains uncertain because it is not clear how the Directive’s definitions of ‘alternative investment funds’ or ‘holding companies’ are to be interpreted – the European Commission has previously suggested that typical REIT group businesses and the activities of typical property investment joint ventures should be in scope.”
Before the UK and other member states transpose the Directive into national law, European regulators will sit down with the European Commission to provide guidance, as well as various implementing measures, to flesh out the bones of the Directive. The Directive’s scope and whether ordinary property investment companies and joint ventures are caught may or may not be clarified during that process.
Martin Wood, group head of tax & treasury and insurance for Land Securities, added: "The progress the property industry has made on the AIFM is a testament to the way the industry has worked together. However, while clarity remains blurred on what the final directive will look like, we need to continue to work together to ensure the property industry’s voice is heard loud and clear."
While many property fund managers are broadly content to be covered by the AIFM and to benefit from the EU marketing ‘passport’ it provides, they were today urged to remain engaged as regulators work out how to implement the directive.
John Forbes, real estate industry leader at PricewaterhouseCoopers, said: “The period between now and the Directive coming into effect will be crucial and it is important that real estate fund managers contribute to the lobbying process. Much of the detail of the matters covered by the Directive will be dealt with through regulation.
“Some of this will be drafted at a pan-European level but will be implemented locally. Other areas, for example the treatment of retail investors, are expressly delegated to local regulators. It is important that real estate fund managers engage with the various real estate trade bodies that are discussing the Directive with the FSA.”
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