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IPE special report May 2018

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Dutch property investors fear tax backlash from coalition agreement

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Dutch property could become less attractive to investors with the country’s new coalition government seemingly taking aim at the tax regime for direct investments, Dutch financial daily FD reports.

One sentence in the coalition accord reads: “In connection with the abolishment of the dividend tax, direct real estate investments by investment organisations will no longer be permitted.”

Experts quoted by FD warned that direct investors must cease investing, or transform themselves into a corporate-tax-paying company.

Until now, property investment organisations have been exempt from paying corporate tax if they paid the full profit to their investors.

The same institutions pay 15% dividend tax, although this can be reclaimed by pension funds.

However, listed investment organisations such as Vesteda and Amvest, which predominantly invest in Dutch direct property on behalf of pension funds and insurers, are to pay 21% corporate tax as of 2020, the newspaper said.

“I was flabbergasted when I read it,” Frank van Blokland, director of sector organisation IVBN, said. “This came totally unexpected and is very ill-considered.”

He warned that Dutch pension funds would prefer investing abroad, something that would be at odds with the outgoing Cabinet having urged institutional investors to ramp up their local investments.

“The political parties wanted to relieve corporate tax pressure on the one hand, but came up with something that disproportionally hits the sector on the other hand,” said Dirk Jan Lucas of NSI, which invests exclusively in Dutch property. “They can’t have meant this.”

“I can’t imagine that the new government wants property to return less,” echoed Hans Janssen Daalen, director of Dufas, the Dutch Funding and Asset Management Association.

Richard Beentjes, director of legal matters at Wereldhave, told FD that such a measure would “disadvantage the property investment climate in the Netherlands”.

The coalition partners declined to comment to the newspaper.

Property sector breaks new record

Separately, a report has indicated the strength of demand for property in the Netherlands.

JLL, a financial services provider for the property sector, said the Dutch real estate market was on its way to a record volume of investments this year.

It noted that over the first three quarters, €14.8bn had been invested in direct commercial real estate – a 15% rise compared to the same period last year. The volume for the full year could exceed €20bn, JLL added, as there was still at least €4.5bn of transactions in the pipeline.

JLL said the retail market was slightly behind in this trend, but forecasted that retail would also perform strongly this year, because some large portfolios were still in the process of being sold.

Dré van Leeuwen, JLL’s head of capital markets, said the demand for Dutch property was “extraordinary” and exceeded real estate on offer.

“For most buildings and portfolios we have sold recently, there was €5 available on average for every investable euro,” he added.

Van Leeuwen observed that the continuing large demand had led to ever-decreasing initial returns, but added that Dutch real estate “still offered an attractive premium relative to [cities] like London, Paris, Berlin and Frankfurt”.

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