Romanian investors look to REIT legislation to bridge real estate and capital markets
<p>Investors, government officials, and representatives of real estate companies gathered in downtown Bucharest on October 22 to discuss the expected adoption of real estate trust investment trust (REIT) legislation in Romania in the first half of next year.</p>
<p>Two panels were organized as part of the event organized by the Bucharest Stock Exchange (BVB) and Meta Estate Trust. The first featured BVB CEO Adrian Tănase, state secretary Mihai Precup, ASF official Razvan Popp, BCR Pensii investment director Mugur Popescu, and the initiator of the REIT legislation, liberal senator Cristian-Augustin Niculescu Țăgârlaș. </p>
<p>The BVB CEO began by noting that the real estate sector is very underrepresented on the local stock market. On the flip side, Romanians already invest in real estate, making it the second type of asset after bank deposits nationally. Official data comes to support the claim - Romania has the highest home ownership in the world, at around 95%. Nevertheless, home prices and rents have continued to rise in recent years, especially in major cities like Bucharest and Cluj-Napoca.</p>
<p>REIT legislation can make capital investments in real estate easier to understand and more efficient, Adrian Tănase said, not to mention open the door to smaller investors who cannot buy property directly. He also said that at the moment, the fiscal burden on companies like Meta Estate Trust is much higher than REITs have to deal with traditionally. The company, on the other hand, says that it cannot function as a true REIT without proper legislation in place.</p>
<p>According to state secretary Mihai Precup, REIT legislation can prevent cases like that of <a href="https://www.romania-insider.com/diicot-investigation-fraud-nordis-october-2024">developer Nordis</a> through greater transparency and traceability of funds. He also said that today, over 60% of BVB market capitalization is provided by state-owned companies or companies in which the state has an important say. Romania needs more sophisticated financial instruments to provide more opportunities for investors, he argued. </p>
<p>“We’re going from 0 regulation for this sector to an almost maximal level of regulation,” said Cristian-Augustin Niculescu-Țăgârlaș, a liberal senator and the initiator of the REIT law. Maximal, however, does not mean punishing. The new legislation would regulate taxation, rents, and the distribution of profits, which in the case of REITs has to be at around 90%. He also mentioned that similar laws in the EU served as a model for the one now being debated in the budget committee of the Chamber of Deputies, the lower chamber being the one that will decide on its adoption.</p>
<p>Mugur Popescu, director of investments at BCR Pensii, the pension fund operated by one of the largest banks in Romania, said that large institutional investors seek investments that provide steady growth and low risk. REITs can offer that, as they already do on the US market, with better returns and lower volatility than traditional stocks and bonds, he said. </p>
<p>The second panel featured capital market analyst Cristi Teodorescu, Meta Estate Trust CEO Alexandru Bonea, BREC head Despina Ponomarenco, Goldring director of sales and trading Nicolae Tudor, Libra Bank director of large corporate &amp; international desk Sorin Cerbu, and VDLawGroup partner Luca Dejan.</p>
<h3><strong>What are REITs?</strong></h3>
<p>REITs, or real estate investment trusts, own or operate real estate that produces income, mostly through rent, allowing investors to earn income without owning properties themselves. Developed in the US around 1960, such companies allowed smaller investors to trade prime real estate as easily as any stock. In Europe, REITs took hold only around the year 2000, developing much more slowly due to the tougher regulatory landscape. Today, US-listed REITs have a market capitalization of over USD 1.3 trillion, down from an all-time high of USD 1.7 trillion in 2021.</p>
<p>REITs are sensitive to changes in interest rates, and hikes meant to combat inflation have taken a toll on the industry in both the US and Europe. Maintaining occupancy levels was also challenging, particularly with the rise of remote work. Nevertheless, REITs can help hedge against inflation in a mature market such as the US due to agreements that allow them to raise rents following inflation, according to investment consultancy firm <a href="https://www.schwab.com/stocks/understand-stocks/reits#beacon-deck--27751">Charles Schwab</a>. Some US REITs even offer monthly dividends. </p>
<p>The performance and attractiveness of REITs can be heavily influenced by national regulatory frameworks. Taxation, in particular, can weigh down on the sector’s performance compared to traditional stocks. As a result, many governments award REITs tax exemptions. </p>
<h3><strong>REITs in Romania</strong></h3>
<p>Residential real estate holding Meta Estate (MET) recently released a study on the need for REIT legislation in Romania, the adoption of which is expected to happen sometime in the first half of 2025. According to the study, real estate contributes 7.2% to Romania’s GDP (2023) and such legislation would ensure better access to capital and representation of the sector on the stock exchange. </p>
<p>"REITs are the way for Romanians to invest in the real estate sector by paying the cost of a listed share. They serve as a bridge between the capital market and the real estate market,” said Alexandru Bonea, CEO of Meta Estate Trust. </p>
<p>The company aims to become a true REIT following the adoption of proper legislation, as it exists now in 41 countries, representing 83% of the world's GDP. Around 893 REITs operate globally and perform well in terms of total shareholder return against non-REITs. They also are less volatile than traditional stocks, according to the Meta Real Estate study.</p>
<p><em>radu@romania-insider</em></p>
<p><em>(Photo source: Romania Insider)</em></p>