The proposals of the socimis to the Government to boost the real estate business after the covid-19

The world of socimis Join forces to ask the government to stop the impact that the crisis of the coronavirus in the real estate market and lays the foundation to boost business when economic recovery starts.

Among the measures they request there are some directly related to the health crisis, such as those related to dividends, extend the term to start trading or make the obligation to obtain at least the 80% of income via rental, although we also find some historical claims, as a tax cut to encourage asset reforms, Reduce bureaucratic obstacles or reinforce legal security that both the different actors of the ‘real estate’ claim, or the modification of the regime under which these investment vehicles operate to adapt it to current circumstances.

We review the main conjunctural and structural demands of the sector and explain the reasons that would justify its implementation:

1. Delaying the payment of the dividend until the end of the year

 

In an open letter you forwarded association to the government the past 31 of March, the industry association proposed to postpone until the end of the year the term to distribute the dividends against the fiscal year 2019. Remember that these companies are obliged to distribute at least the 80% of its annual profits among its shareholders. "No modification of the regime is requested, but simply a temporary relaxation of said requirement. Thus, and in order to avoid an adverse collection impact, this measure could be limited to a simple extension of the distribution period, but always within the current exercise ”, say the missive.

Entrecampos, the socimi deans in Spain, values ​​this measure and explains that "it seems fair and proportionate, given that the Administration would not be granting more aid (and it's quite) that a certain delay in the income of the retention of the dividend ”. In your opinion, it's the most realistic request of all.

From Invermax, the manager of Something for something, the socimi of safe rental housing, They also defend that "it is rightly convenient for the Government to accept the postponement of commitments such as the payment of the dividend". And they insist that "how logical it is if the socimis respond to the requests for help from their tenants, the government to help those who are offering this aid in another way. Actually, all is a treasury stress problem for a few months ”, which is mainly motivated by the moratorium on rent payment to tenants affected by the health crisis and, in general, by the rebound in late payments in the real estate sector.

In that same line, Antonio Fernandez, Chairman of Registered Advisor Armanext, stresses that Socimis should not have special treatment vis-à-vis other companies, neither in a positive sense nor in a discriminatory one. "To the socimis, that a driving axis with thousands of housing tenants, of small premises or industrial warehouses, they should be supported, First, like the rest of the companies, and second, so that part of these aids may somehow indirectly affect their tenants. Thus, It could be expected that this very basic level of equality and service will end up penetrating and that a necessary response will be given to this situation, which in most cases has been due to trying to differ., even renegotiate or forgive, part of the income to small and medium entrepreneurs ”.

Besides, Fernández recalls that many of these companies have not been able to operate due to the decree of the state of alarm. "For example, the ones with shopping malls, hotels or public spaces in general by law have not been able to carry out their activity. Thus, it is fair that, like the closure is regulated, regulate and understand the consequences with other obligations and responsibilities impossible to fulfill for regulatory reasons ". And he adds that "the Administration should understand that the coronavirus crisis is an unforeseen problem, oblivious to the managers and the debt of these vehicles, and therefore it would be expected that allowing a delay of a few months would not go against the philosophy of the Socimis ".

2. Extend the deadline for listing and submitting accounts and make the sale of assets more flexible

 

Among Asocimi's proposals to minimize the impact of the health crisis on these investment companies, it is also worth highlighting the extension of the term of 24 months they have to become listed once they take advantage of the special regime. As explained in the letter, "The current situation makes it unfeasible for new entities to access the market, reason why it would be logical that the calculation of two years was interrupted ”.

On the other hand, The Executive also requests that it study the possibility of extending the period of three months to formulate and approve its accounts., for that period to start counting after the alarm state ends. Another claim of the association is the possibility that these vehicles can sell assets in their portfolio to obtain liquidity before the three years established by current regulations, although it clarifies that "a total and indefinite relaxation of the requirement is not intended", but only for those assets that throughout 2020 those three years old (a, that have been leased for more than two years).

3. Lower taxes to boost reforms

 

The sector also proposes to rethink some taxes for the postcovid-19 stage. Even though these vehicles they have bonuses for example for the purchase of housing, the truth is must pay a VAT of 21% when carrying out reforms and repairs of the assets that they put up for rent, in front of 10% paid for example by the individual who does improvement works on his home.

So, the socimi Almagro Capital, specialized in residential buildings for the elderly, asks at least to equate the tax to the regime applied to individuals, since “they explain that the investment made to improve assets aimed at improving the quality of the rental housing stock, so the philosophy of the reform of the house in question is the same ”.

Entrecampos, Nevertheless, goes one step further and puts on the table the possibility of starting an even lower VAT. "This requires significant renovation costs from owners to keep the product to modern standards. As lessors are final consumers, and since the housing lease is exempt from VAT, all input tax falls directly on our profit and loss account, and makes the idea of ​​keeping the property renovated less attractive and the quality of the real estate park suffers. Let's not forget, than, as professionals in this activity, we aspire to have our homes in absolutely updated standards ”. So, insists that it would be positive to apply "a lower tax rate, or that they allow us to deduct input VAT by applying a “0” rate or any other similar measure, to find a balance between the VAT exemption in the leasing of houses and that those of us who engage in this activity as a business are not considered final consumers, because the truth is that we do add added value to the service we provide ”.

On the other hand, many socimis also defend a extension of tax incentives on other assets beyond homes, as an example the land purchased to develop housing or commercial premises, to which a super reduced VAT of the 4%.

According Silicius, the socimi of the manager Mazabi and which is still pending to become listed, the VAT reduction "would undoubtedly be good for the sector", as well as enabling a quick VAT or personal income tax refund.

Nevertheless, Antonio Fernandez, de Armanext, doubts that these tax improvements can be carried out in the short term. "This type of measure goes beyond the socimis and even falls under the scope of the European Union, reason why I see more more complicated to realize these in these times ”, although he considers that “there are many reforms that, with this crisis, they are emerging and they clearly need the calm and moderate attention of a change in harmonization with other countries and with other collection and equality effects to take into account ”.

4. Reduce administrative deadlines and expand the range of assets

 

The sector also focuses on two other measures that would help the sector: cut red tape and allow vehicles to expand their range of investments.

For example, Joaquín López-Chicheri, is president and CEO of the Vitruvio socimi, stresses that "the activity carried out by the socimis, and whose immediate impact on the economy, consists of the improvement of the urban park of the cities. Listed realtors are pouring hundreds of millions each year into building renovation and rehabilitation. If the licensing process is expedited, we could invest much more money in the coming months, helping job creation, to the increase of collection and to the improvement of the urban park ". And adds that "streamlining the procedures would be crucial to aid recovery. Without going into its simplification, what would be desirable, I speak only of its streamlining ”, as well as "positively encourage the good performance and productivity of the technicians of the municipalities, and introduce tools like BIM to leave behind a nineteenth-century licensing mechanics ".

In that same line, the Almagro socimi highlights the need to streamline administrative procedures and facilitate procedures with the Land Registry or the application for licenses. "All of them imply a significant cost not only for their cost but for the time invested in these efforts", Almagro stresses. To understand what is behind this claim, this data is enough: the delay in granting new construction licenses and first occupation has a cost to the buyer of 12.802 euros per home, according to a report from the EY consultancy and the Madrid promoters association (asperity).

Besides, from the company insist on the possibility of "allowing access to the purchase of more types of assets and loans, like for example the acquisition of failed loans (NPLs o non-performing loans). Institutional investors have the ability to convert those NPLs in healthy operations ”. This would allow, according to Almagro, increase the housing stock available for rent that Spain so badly needs.

5. Update the regime and apply a moratorium on the ‘income test’

 

In one of the main housing socimis operating in Spain they also insist that it is necessary to turn the regime around, which approved in 2009 and it was last revised in 2013.

"There is a general consensus in the sector on the need to make adjustments that, without essentially modifying the current regime or its primary purpose, correct certain operational deficiencies that have been revealed in recent years ", society details, which ensures that “well, the regime in Spain would follow in the wake of others like the French, in which different versions of the same model have naturally been succeeding, but always inspired by the basic principles of the ‘Real Estate Investment Trust’ (REIT)”. So, stresses that “The sector must take advantage of opportunities that will open in the coming months to carry out adaptations that guarantee a simpler system, fair and rational ”.

Specific, talks about the necessary revision of the ‘income test’ (which is used to measure how many incomes these companies obtain through rents and how many by other means) whose "excessively formalist application can lead to completely illogical situations and far from the purpose of the rule". To explain his thesis, put this example: a socimi closes this year with negative returns, but he receives a symbolic income as compensation for the detachment of the ceiling of his offices. In 2021, still with the effects of the coronavirus crisis, registers losses, while receiving income from a bank deposit.

"In accordance with the literality of the norm, I would have breached this socimi, as their income not from the lease of real estate is higher than the 20% of all their incomes and in 2021 would be permanently expelled from the regime, having to return the tax benefits enjoyed and also having the prohibition to re-apply the regime until three years after it breached. Makes sense? Obviously not ”. In fact, the vehicle insists that they can occur "completely absurd situations that they can retract strategic decisions and motivate actions contrary to the good development of the business just for fear of an excessively formalistic application of the rule ”.

6. Strengthen legal certainty, the basis of everything

 

Legal certainty is, maybe, one of the most repeated claims by different operators in the real estate sector. And it is the only request to which the large socimis of the domestic market join and that differ from the MAB companies in aspects such as their financial muscle, the exercise of transparency that requires listing on the continuous market, its high liquidity or the broad shareholder base that Merlin Properties has, Colonial and Lar Spain, What are they, together with Árima Real Estate, the only four real estate investment vehicles listed on the traditional stock exchange.

In Lar Spain, society specialized in shopping malls, explain that their main message to the Government is the need to "maintain a high dose of legal certainty, makes us competitive. And not being it would be an additional problem to the situation that is causing the covid-19 and that in itself is complicated ”.

Thus, insists that "it would not be good for the government to carry out its intention to tax the 15% of the benefits of the socimis that do not distribute via dividends (the socimis are obliged to distribute among their shareholders at least the 80% of its benefits). Big socimis like us, Colonial or Merlin we already distribute the 100% and applying one measure to the others would hardly mean an income of 10 million euros to public coffers, while it would cause legal insecurity and place us in a situation of inferiority compared to other countries. With the little economic impact that the measure would have and the loss of competitiveness that could be, It doesn't seem to make much sense. ".

Source: Idealista.- 28/05/20.