European Property Federation

EPF logo

<EU Investment Screening

The creation of an EU capacity to control foreign [non-EU] investment now has traction as could be seen in President Junker’s State of the Union speech and in President Macron’s Athens and Sorbonne speeches.

The first manifestation of this, a Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union, is still very 'light touch': the Commission has no direct power to condition, prohibit or unwind foreign investments. Simply, member states must report on foreign investment in their territory and can also report on foreign investments in other member states that they think are likely to affect their security or public order. The Commission issues an opinion, and the member state of investment needs to justify any disagreement with it, all this within a Cooperation Mechanism.

A member state will still be able to resist and have the final say, but the forum, the agora, becomes European.

Real estate

The Commission's screening power is limited to "foreign direct investments that are likely to affect projects or programmes of Union interest on the grounds of security or public order" (Art. 3(2)). The 'indicative' list in the Annex looks high tech and far away from real estate, although Horizon 2020 is where most of the big money for cutting edge energy efficiency building or renovation projects comes from. But the main point here is that the list is 'indicative': the Commission will be able to screen whatever it deems strategic in terms of EU security and public order and the Court of Justice has over the years given an ever-wider interpretation of 'public order'.

Clearly, the main immediate EU concern is foreigners buying up high tech, but for how long? Today, the Chinese clamp down on foreign investment in real estate every time they think or claim it's contributing to the overheating of the economy. How long until Europeans do the same, if only in retaliation?

Property is certainly a fat goose.In the Commission Staff Working Document (they were under such political pressure to get this out, they didn't do an Impact Assessment!), Real Estate/Property is the second most important foreign direct investment in the EU: a total, cumulative stock of € 273 billion in the 2nd quarter of 2017, just after Computers & Electronics, but in fact it's probably n°1 if you take account of the real estate aspects of Healthcare, Construction/Building, Retail, Leisure & Recreation and Dining & Lodging. (Figure 7, p. 14). And what a progression! From € 0.02 billion of annual foreign investment into real estate in 1995 to € 23.10 billion in 2016. (Table 8, p. 15)

Developments

The full extent of EU ambition can be seen in the Communication on Welcoming Foreign Direct Investment While protecting Essential Interests: an in-depth analysis of foreign direct investment flows into the EU will be completed by the end of next year and a Coordination Group chaired by the Commission and composed of representatives of the member states will identify critical assets, review subsidies and other practices by third countries facilitating strategic acquisitions, and start reflecting on a bona fide EU-level screening mechanism. This fits neatly with European defence integration, another quickly developing policy.

Note that the investment screening policy is pure EU, not EEA. On the contrary, Norway is singled out as the 7th biggest foreign direct investor in the EU, between China and Russia (Communication, Chart 2, p. 4). Cutting edge EU fish-smoking technology needs protection.

EPF Members: Full report under epf17-82 of 10.10.2017