The reform of the Socimi and the dilemma of the alternative stock exchange market (MAB).

The difficult access of individuals to financing for the acquisition of properties, the huge real estate stock in Spain and the tendency to comparison with the European standards (where the rental rate stands at 30% opposite to the current 17% in Spain) has made the government realize that new norms which will promote the rental market in Spain are necessary.

Among these new norms, the Tax Measures Law from 27th December, has modified the norms on the listed limited companies which invest in the real estate market (Socimi) in order to reactivate the Spanish market and try to match them with the Real Estate Investment Trusts (REIT) or with other examples of collective investment in properties, used in other countries with a huge success.

The main novelties of this reform are centered in the tax area (they will now pay 0% in company tax instead of the previous 19%) and the reduction of formal requirements (their minimum capital will decrease from 15 to 5 million Euros; they will be able to invest in a single real estate asset; the limit of indebtness is eliminated and there is the possibility of listing in multilateral negotiation systems, such as the alternative stock-exchange market.

It is true that the scarce use of the Socimi up to now, was its tax inefficiency, as well as the costly and rigid requirements (the had to be listed in secondary markets – Stock Exchange). But it is also true that the success of this reform will be in the hands of the MAB, a self regulated organization, supervised by the National Share Market Commission, and it will also depend on the regulation developed in reference to the Socimi.

Therefore, the regulations of MAB, will establish the rules of the game in matters as important as the requirements and obligations to access the market and of information to investors (need of valuations or assessments and its recurrence) and, above all, the requirements of liquidity and free float of their shareholders (this is, the percentage of shares in circulation – in the hands of minor shareholders). This positioning is essential to guarantee the feasibility of Socimi, first, as an investment channel which allows individual investors or institutions to participate in the profits obtained in the rental of a certain real estate portfolio or even a single property.

This would allow financial institutions and other great real estate operators to use the Socimi as a tax efficient channel to obtain funds, to develop new projects, to put into circulation different property portfolios and diversify risks by sectors or by type of property (residential, office, hotels, sanitary sectors), with the main objective of appealing to international investors.

On the other hand Socimi could also be used by small real estate operators (family offices, small business and family groups) as channels of restructuring and tax efficiency which will allow them to obtain liquidity and to professionalize and provide more transparency to its structure so as to be more competitive opposite to the other operators within the sector. The efficiency of Socimi for these small operators will be even more linked to the normative development carried out by MAB in order to estimate costs, value its tax efficiency and, mainly, have the assurance that all minimum requirements of free float will not prevent them from maintaining a certain control on the shareholders, without diluting excessively their participation in it.

This is why MAB is facing the dilemma of creating an appropriate and flexible regulation in order to comply with all liquidity and dispersion requirements of a multilateral negotiation system (similar to the one followed by a segment of growing companies, which requires a volume of shares in circulation of two million Euros) and as well, cover the needs demanded by the market so as to accommodate small real estate operators (in line with the demands of the current negotiation segment of the Sicav, with no requirements of free float other than the need of having a certain number of shareholders).

Source: Cinco Días

43