Why was the ZIA established?


he real estate sector is one of the biggest in Germany, representing about 20% of the economy. Yet in spite of its size there is no formal representation to lobby politicians.

The industry is very fragmented, and while there are many representative bodies, they only cater for individual sectors. Other industries - automotive, chemical or construction for example - have enjoyed representation for the last hundred years with highly qualified lobby organisations for which the Federation of German Industries (BDI) provides representation in parliament.

The German Central Real Estate Committee (ZIA) was established to fill this vacuum - to provide representation for the real estate industry. Our first idea is to get a roundtable together comprising all interested parties - companies and associations - to discuss how we achieve political representation for the industry.


Whom are you seeking to attract as members?


mong the first members to join since the ZIA was established six months ago are open-ended funds, pooled funds, some Spezialfonds as well as stock market listed companies. We have more than 50 members - which between them account for €250bn in real estate assets; this will have doubled by the end of 2007. Members include large domestic players as well as the local subsidiaries of major international companies. Companies like DT Immobilien, ICE, IVG, Morgan Stanley and Pramerica, as well as the big insurance companies and banks.

In addition there is an increasing number of real estate associations who are keen to see one body representing the real estate industry and want to join us. An example is the association of closed-ended funds and the German association of real estate brokers, the latter of which represents 8,000 brokerage companies. So we have over 50 direct members representing thousands of companies.

We have not yet approached the institutional investors. I think they will join too if they have interesting ideas. But in general pension funds are more passive - they do often not want to go public.


What is the relevance of the ZIA for the institutional investor?


he ZIA is important for the institutional investor firstly because of its aim to ensure that all stakeholders understand the real estate industry. This should then result in a more positive tax regime which will enhance the industry's performance and profitability.

The ZIA is in the process of setting up 10 sub-committees; one of these is the corporate governance committee. It was set up five years ago and has now been integrated into the ZIA. Its aim is to ensure continuous improvement in the transparency of the real estate industry, and in pursuance of this we work with INREV and EPRA very closely.

We have contributed to the work with INREV and EPRA by developing a codex for good corporate governance of real estate companies, listed and for closed-ended and open-ended funds. We have also drawn up an implementation guide.


Will pension fund allocations to real estate increase as a result of this


ne of the central aims of ZIA is to increase the transparency of the German real estate industry, bringing it into line with Anglo Saxon standards. The German real estate industry is becoming much more transparent, and with that the great appetite of foreign investors for investing in German real estate is increasing.

We also hope that through greater transparency German institutional investors will increase their allocations to real estate from below 5% towards 10%. Their readiness to invest in real estate is increasing - partly as a result of our initiative and the work of EPRA and INREV.


What are the challenges in accessing real estate in Germany?

n terms of the availability of investible real estate the situation in Germany is rather different to that found in other countries. This is probably because of the two world wars and associated inflation - in spite of the fact that we have more real estate in Germany than in any other European country.

German real estate is hidden in the balance sheets of companies for whom real estate management is not the core competence. Currently this accounts for 70% of German real estate compared with just 30% in the US. The reason for this is that we had an accounting system that was creditor-oriented and not owner-centric.

The main change brought by IFRS is that real estate assets must be shown at market value rather than at book value; this makes it possible to assess the degree to which the assets in question are being sweated. The result of this has been the move of increasing amounts of real estate from company balance sheets into professional management with proceeds being invested in the company's core business. Thanks to real estate investment trusts (REITs) the exit tax rate is now half what it used to be. In other words there is now an incentive for companies to sell their real estate.

As a result of these developments the amount of real estate in Germany owned by the companies that occupy it might fall to around 50% in the years to come. The introduction of REITs means that this could happen relatively quickly.

In the past the sale of real estate was seen as a sign that the company in question was in trouble. This is no longer the case because it is now clear to local investors that it makes more sense for a company to sell its real estate and invest the proceeds in its core business.

German real estate companies have learned a lot from foreign - in particular the Anglo Saxon experience. Many German real estate managers have established a presence abroad by setting up local subsidiaries and buying foreign firms. They have learned at each stage of the process.


What is your view of the attitude of German institutional investors to investing in real estate?


nstitutional investors are very cautious - which makes them good real estate investors. All of them are surprised at the rapid development of the real estate market in the last few years and are checking to see if their allocations are sufficient. Even these conservative investors feel that real estate has now become an asset class in its own right.

German institutional investors are even more cautious than their foreign counterparts. They are quite heavily invested in bonds; after tax the prevailing interest rate of 4.5% only just beats inflation. I think they are on the way to taking more risky investments and real estate is a very nice compromise.


What is the main challenge facing the ZIA?


he biggest challenge for the ZIA will be to make clear to politicians that the real estate sector cannot be used by government to plug its budget deficits. The danger is that the government will look to the real estate sector as a source of tax revenue on account of its size - we have always had this. The tax system needs reform to make investing in real estate worthwhile - better rules for sale and purchase, for example. More work is needed to ensure that things go in the right direction.

The project to achieve political representation for the real estate industry is a logical next step. This process will take years, although we are finding much openness - even interest - among MPs and civil servants to learn more about real estate. In the past it was seen as too technical and bureaucratic.

I am pleased with the progress of ZIA over the last six months. Real estate companies think that this initiative was right. We must be supported if we are to progress as quickly as possible to our goals.

Dr Eckart John von Freyend is also member of the supervisory board at IVG Immobilien in Bonn