Spain is a well-established overseas destination to invest in property and a prime favourite with investors from the UK – the Foreign and Commonwealth Office estimates that around 1 million Britons own a property in Spain. However, after a decade (1996 to 2006) of spectacular price rises when property values increased by a huge 190%, the Spanish property market is currently suffering from a downturn.
In an attempt to kickstart the property market and maintain investors’ interest in the country, the Spanish government has drafted new legislation for the creation of real estate investment trusts (REITs). Known as Sociedades Cotizadas de Inversión en el Mercado Inmobiliario in Spanish, the REIT legislation is expected to become law during the first half of 2009.
As a company, a REIT owns and operates real estate properties, and must regularly distribute a large percentage of its income as dividends to investors. In return, REITs enjoy substantial tax breaks. REITs were created in the US in 1960 as a vehicle to allow large-scale investment in property and currently represent an important segment of the US economy. US REITs have experienced a rise in their equity market capitalisation of over 30% in the last 10 years. REITs are also popular in the UK and Australia.
