Taylor Wessing Real Estate News






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Taylor Wessing

Real Estate News


Taylor Wessing

Real Estate News

Commercial real estate remains an attractive investment. Today, more than

ever, investors are seeking to take advantage of opportunities created by

favourable exchange rates and access to foreign capital by investing in

overseas assets.

Our international real estate practice remains highly active and in this, our

latest quarterly report, we outline the trends and developments impacting the

real estate sector across our international network.


Market trends: In 2014, rental levels in prime locations and vacancy rates in prime shopping centres and high streets remain stable. Brussels and Antwerp are still the leading commercial cities in Belgium; both cities registered the highest take-up volume. Investment activity in the retail market is expected to improve due to anticipated new large shopping centre projects. Retail warehousing projects are dominating the development scene. Investment activity is picking up - there are fewer transactions but they are larger in size. In addition, the activity in the office market has intensified in 2014, driven by large transactions in the public sector. Belgium has witnessed an increase in the office investment market, with prime space in central locations remaining the most popular investment. Investors are keen to invest in industrial property but are hindered by limited available prime space. Still, moderate growth is expected throughout 2014 and 2015. Developers, the public sector and consultants agree that delivering green buildings is necessary and an achievable challenge within the budget of a conventional code-compliant building, although real estate investors and banking companies are not yet convinced. Moreover, the demand for residential buildings in the cities continues to increase. Due to higher density, smaller dwellings will be needed to produce affordable new housing in the coming decade.

Regulatory Update: As of July 2014, the retail permit law in Belgium shifted from a federal law to regional decrees. The three regions, Flanders, Brussels and Wallonia all have regional laws currently in force. This regional regime is complex for foreign investors and will require up-to-date advice.


Market trends: Austria has seen slight growth which is expected to continue, with Vienna’s high standards and low vacancy rates making it one of the most sought-after markets for

commercial property. The Czech Republic has

seen growing interest in commercial property rentals in city centres and an increase in investment opportunities in agricultural land. In

Hungary, the commercial real estate investment market has started to gain momentum,

although Budapest has high numbers of vacant commercial premises and relatively low rental

levels. In Poland, developers are planning and

building new shopping centres throughout the country. The high demand for office space in previous years is encouraging new investment.

This trend also applies in Slovakia, where

developers are interested in delivering new properties that meet environmental sustainability standards. Farmland investment and residential projects at the outskirts of the cities are also

being targeted. In the Ukraine, the real estate

market remains attractive to foreign and national investors, particularly following the Ukraine/EU association agreement, with major hotels and business projects expected in Kiev, Donetsk, Lviv and Kharkiv.

Regulatory Update: In Austria the new Income Tax on Profits of Real Estate Transactions and a new system of court fees for the Land Registry may lead to increased costs. The new

Civil Code in the Czech Republic introduced a

number of changes which will impact the real estate arena: we consider this to be the sector’s

regulatory change of the decade. In Hungary,

the ban on building stores, shopping centres or new retail space exceeding 300sqm is important


for international investors and retail chains, as developers require Ministry consent to build new

malls or supermarkets. In Poland, a recodification

of the Construction Code is scheduled for October 2014, with significant progress having been made on deregulation, particularly on the issuance of construction permits. Legislation

has been initiated in Slovakia regarding the

acquisition of agricultural land with the aim of introducing protective measures and setting qualification and eligibility requirements for

farmland owners. Finally, the Ukraine has a new

system of land registration and since November 2013 sales of real estate are only allowed following the assessment of the plot’s value by a newly licensed residential appraiser. At present only around 100 of the 3,500 appraisers have been relicensed.


Market trends: The Chinese domestic property market has been depressed for quite some time, except for a few popular e-commerce related, high profile tourism and pension housing projects. The stagnated housing market has triggered liberalisation of house purchase and mortgage backed loan restrictions in a number of cities as part of a general economy stimulus plan. Due to the reduced return rate in the domestic property market, we increasingly see Chinese developers and property funds looking to offshore markets.

Regulatory Update: The central and local governments have issued a new round of land supply rules. Shanghai has drastically reformed the industrial land supply rules, which could make it unattractive to foreign investors. In formulating the new city master plan, instead of maintaining or increasing the overall supply of construction land for any type of property development, Shanghai has reduced it. The central government has recently issued similar rules.

The first Chinese REITs have also been launched, although they are only available to selected high end private investors rather than open to general

public investors. The Chinese regulatory authority is still focusing on REITs as an internationally-adopted real estate financing product.


Market trends: Investment in real estate has reached €11bn, contracting by €1bn in only a year, a downturn of 8%. The first quarter of 2014 was promising with the sale of four flagship assets in the CBD, but subsequent quarters have seen less activity, the market lacking core assets available for sale. The value-added segment did see activity encouraged by more flexible financing conditions.

Regulatory Update: The French government issued a number of significant modifications to real estate law: The Law ALUR changed a number of important laws impacting co-ownership, the regulation of professional real estate agents and residential leases. In addition, it altered a number of planning law provisions increasing the density and prohibiting the extension of urban areas and modified the regulation of polluted areas regarding the disclosure of information, development projects and clean-up procedures. The Law Pinel modified the provisions of the French commercial code applicable to commercial lease agreements.


These rendered the law more ‘tenant-friendly’, which investors must take into consideration when investing into French real estate. The new law disallows the practice whereby tenants promise not to exercise their break-option(s) in return for tangible benefits from the landlord, although it provides exceptions for certain asset classes, including warehouses and offices. Another new provision holds that the uncapped rent of a renewed lease may not be subject to annual increase of more than 10% of the rent paid in the previous year. A further new change obliges landlords to detail every service, tax and fee which they intend to charge and invoice to the tenant. Where an item is not explicitly detailed in the statement, the landlord runs the risk that he will bear the costs. We are expecting an implementation order which will specifically outline the details of this change, but it may put an end to the classic triple net leases.

On September 5th, 2014, the French and Luxembourg governments signed a protocol amending the France-Luxembourg Tax Treaty. The protocol makes France entitled to tax capital gains derived by Luxembourg residents from a sale of shares or other rights in any type of entity if more than 50 percent of its value derives directly or indirectly from French real estate assets. The amendment will enter into force following ratification by both countries, and therefore could be effective as early as January 1st, 2015. Investors holding French real estate assets through a Luxembourg structure should therefore consider realising their gains or restructuring the ownership of these assets prior to the protocol coming into force. They may consider using a French OPCI as an alternative investment vehicle. OPCIs are exempt from French corporation tax on real estate profits, but they are regulated investment vehicles and subject to the control and supervision of the French financial markets authority The government has indicated that a further amendment will concentrate on the taxation of OPCIs.


Market trends 2013: The German commercial property investment market is strong with a total turn-over in the first half of 2013 of €12.6bn. This was the highest half-yearly result since the boom year of 2007. Investments continue to concentrate on the “big five” cities of Berlin, Dusseldorf, Frankfurt, Hamburg and Munich, with office property the dominant use followed by retail property. Whilst demand is still focused on core and core-plus assets, there is an increase in investors willing to take risks in the German market.

Regulatory Update: The Tenancy Law Amendment Act came into effect in 2013 and addresses some of the most pressing issues on both landlords and tenants in Germany. These include measures against rapidly rising rents, incentives to undertake energy efficient works and improvements to the landlord’s legal position in the event of rent arrears (known as the phenomenon of “tenant nomads”).


Market trends: The Singapore property market has been mostly depressed in 2014. The cost of private residential properties has decreased, the third straight quarter of price decline. Similarly, rentals of private residential properties fell by 0.6% in Q2 2014, compared with a 0.7% decline in Q1 2014. The cost of office space remained unchanged in Q2, following a small increase in the previous quarter. On the up side, rentals of office space rose, growing from the 2.4% increase in Q1 2014. In retail, the cost of shop space declined in Q2 2014, after remaining unchanged in the previous quarter. Rentals of retail space increased in Q2 2014, compared to the decline in the previous quarter.


Regulatory Update: Singapore’s complex housing market policies include government control on the use of land and active government participation in planning, construction, and housing finance. The last couple of years have seen drastic regulatory changes, including the January 2013 measures that seek to lower LTV limits for non-individual borrowers from 40% to 20%, of interest to any corporate investors seeking to invest in Singapore. Another key regulation announced in 2013 states that under the Total Debt Servicing ratio, the borrower’s monthly debt repayment should not exceed 60% of his or her monthly gross income, a reaction to the growing household debt in Singapore. In addition, recent amendments to the Land Acquisition Act seek to update the compensation framework and improve the land acquisition process. This is pivotal to Singapore’s development and the facilitation of the building of roads, rail infrastructure, schools, hospitals, industrial parks and public housing for the greater public good, Recognising the impact on property owners affected by land acquisition, with stream-lining and improvements introduced, landowners now receive the full benefit of market value compensation of acquired land in Singapore.


Market Update: The business outlook for Dubai and the UAE is generally strong. Confidence appears to have returned and regional troubles have strengthened its status as a safe haven for Middle East investment. Both the commercial and residential property markets have recovered from their record lows of a few years ago, although we are now seeing sale and rental values level out. The retail market remains strong, with a relatively small number of large malls dominating, assisted by high-end brands willing to take premium space. The industrial sector also remains relatively robust, with a government-led initiative to shift industry to new open spaces south of Jebel Ali and around the Dubai Investment Park.

Regulatory Update: The government has introduced measures to discourage less creditworthy developers from entering the market. These include requiring developers to provide guarantees of 20% of the construction cost, and requiring them to pay 100% of the land costs up front rather than relying on off plan sales. Property transfer fees have been increased from 2% to 4%, and mortgage restrictions have been introduced. The effect of these measures has been to calm the markets, particularly for residential property, which is welcomed.



Market trends: London continues to remain the city of choice for international investors on the look-out for prime commercial, residential and mixed use assets. This trend is reflected in recent research which attributes 72% of all investment in Central London office space over the last quarter, to overseas investors. The UK Real Estate practice regularly sees investment coming into the capital from across the globe, with prime assets being purchased by Asian, Middle Eastern and North American buyers.

Investment in London real estate is set to be a continuing trend. The capital’s population is fast expanding and a strong commercial and residential development pipeline is needed to house the capital’s workforce in the next ten years. The benefits of this investment can now also be seen in other parts of the UK, with investors looking for commercial and residential opportunities in key regional cities including Manchester and Liverpool.

Another notable trend is investment in high end purpose built student accommodation. Reports in the market indicate an under-supply of luxury student accommodation, which suggests there is still room for the sector to grow, especially in London. There are several reasons as to why luxury student accommodation continues to perform strongly, one of which is the ability of London’s internationally renowned universities to attract high net worth students from across the globe. As a result of this constant and relatively stable demand, real estate funds continue to demonstrate an appetite for this asset class and developers remain committed to seeking out potential development sites. This has had the knock on effect of increased competition for prime locations.

Regulation: The UK has an unusual concept of rights of light which can cause significant delays on developments – particularly high rise towers. The Law Commission has now closed submissions and will be making recommendations as to changes in the law shortly.


The Taylor Wessing team

Key Contacts

Christine Flion Partner, Brussels +32 2 289 60 53 c.flion@taylorwessing.com 
 Cody Chen Partner, Shanghai +86 (21) 6247 7247 c.chen@taylorwessing.com 

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Do not hesitate to contact a member of the international team should you have any questions or topics that you would like to discuss further.

Alexander Scheitz Partner, Vienna +43 171 655 150 a.scheitz@taylorwessing.com 
 Alfred Fink Partner, Paris +33 1 72 74 18 17 a.fink@taylorwessing.com 
 Daniel Ajzensztejn Partner, Hamburg +49 (0)40 3 68 03 121 d.ajzensztejn@taylorwessing.com 
 Jerry Parks Partner, Dubai +971 (0) 4 309 1003 j.parks@taylorwessing.com 
 Anne Chua Partner, Singapore +65 6381 6751 Anne.chua@rhtlawtaylorwessing.com 
 Paul Lawrence Partner, London +44 (0)20 7300 4642 p.lawrence@taylorwessing.com 


© Taylor Wessing LLP 2014

This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing’s international offices operate as one firm but are established as distinct legal entities. For further information about our offices and the regulatory regimes that apply to them, please refer to: www.taylorwessing.com/regulatory.html


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