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< Real Estate Policy – Has the EU taken over?
16-04-2013

How did the EU ever become involved in regulating real estate? When did it happen? Who let it happen? What regulation? Is it good? Bad? Is there a pilot in the plane?

Most busy real estate people could never answer that. All they have is a vague impression that the EU, which until recently seemed irrelevant to real estate, has somehow become omniscient hinter den Kulissen. Most property professionals or lobbyists discover Europe in their dealings with national or regional governments when they are told, time after time, that this or that aspect of the law is non-negotiable, because it comes from 'Brussels'.

Yet the EU is not a tyranny, nor an 'invisible hand'. There are rules that protect people from too much Europe and they have meaning, the most important for real estate being the principle of Conferral by which the EU can only legislate on policy that is in the Treaties. Housing policy is not. That means that even if it occurred to someone to EU-harmonise, say, rent control legislation or real estate agents' sales percentages (such people exist), it could not happen. It would be illegal. Unconstitutional.

However, things are seldom so clean-cut. Real estate is impacted by all sorts of regulation that is not strictly 'housing policy': environmental, energy efficiency, social and economic rules. And here the Union does have power, in particular to ensure the free movement of goods, services, labour and capital, that last one comprising the freedom to invest in real estate anywhere in the Union without obstacle.

On a basic level, cross-border property investment is ensured. But cross-border investment has expanded so much in twenty years - we now see that from the cross-border investment angle, the crisis was only a blip - years that real estate operators are no longer satisfied with 'basic' freedoms. They want total freedom to use their preferred investment vehicles, such as REITs or open-ended real estate funds (OEREFs), without hindrance throughout Europe. EPF and allies tried hard for an EU regime facilitating cross-border investment by REITs and made good progress, as did the German OEREF industry spearheading a European effort for an EU passport for their funds, but it all fell through when the crisis came and the European authorities turned their attention to regulating and supervising financial services and their 'real estate component': Alternative Investment Fund Managers Directive (includes real estate fund managers), OTC Derivatives Regulation (covers use of derivatives by property companies for interest rate hedging purposes), revision of the Capital Requirements Directive (stricter criteria for property loans) and EU Financial Sector Taxes (extending to real estate investment funds).

This is not a question of Brussels bureaucrats going rogue. It is a quick response to a political imperative: giving Europe the power to deal with global systemic risk. Real estate has been caught up in this, to some extent because of what the property industry sees as a mistaken perception by the authorities of the 'financial' nature of the property business, a perception it is working hard to correct.

Impressive as this is at the moment for those of us in the eye of the storm, it does not mean that all property business is being swept up in a tide of EU regulation, far from it. Despite everything, most real estate regulation is not European, not even national. It's local, and will stay that way. In those cases where there is a potential EU aspect to real estate, the industry's task is to ensure three things:

First, we all need to have enough EU culture to not be fooled by our national and regional authorities. Most of the time when they say that such or such rule is not to be discussed because of some EU Directive, they are playing with the truth. EU Directives are usually only frameworks, leaving great freedom to national authorities to adapt the detail to local needs.

Second, we must always remember that EU law doesn't come because some pencil pusher thought it would be fun to do, but because there's an economic or social interest that's lobbying for it, as EPF has done on numerous occasions. The property industry and professions cannot leave it to anyone but themselves to gauge the added value of EU policy. It's not obvious, and you have to be careful. For example:

In the context of revision of the Environmental Impact Assessment Directive, there is an opportunity right now to get EU rules that would impose time limits on local planning authorities for processing developers' assessments, or that would free small development projects from the assessment obligation. In the context of retail services, there is a chance to modulate exclusive reliance on values of properties for local retail taxes. Why not? Wouldn't these changes be helpful? Yes, but not at EU level. Too rigid. Too difficult to change once it's done. And no need, because in all of these cases the EU Directives leave each national or regional government enough freedom to make these changes locally, to the exact extent deemed necessary locally and above all, retaining total freedom to backtrack if it doesn't work out. And anyway, Europe shouldn't be used as a substitute or crutch just because you weren't able to get what you wanted from your local authority.

Finally, it's a good start to have clear ideas on what the EU should or should not do, but if you want that Europorridge to be 'just right' in practice, you need to have what it takes to get the EU to deliver: the professional expertise that Commission officials need, the pan-European representativeness they demand, and the raw lobbying clout to get politicians on board.

Along with political parties and journalism, interest groups are the weak leg of EU politics. That makes those few federations that really get the job done all the more potent.

Abridged version of article published in 'Valuer'