Last December, the British government approved draft legislation that would facilitate the establishment of a REIT market in the UK. Barring any legislative delays, UK-listed REITs should be available in 2007. Investors in the UK, like many of their cross-Atlantic counterparts, have worried about the pace of housing price increases over the past five years, and the possibility that a speculative bubble could burst if sentiment turned. Prices have steadied recently, but analysts believe the market will continue to perform well after a lull this year. Halifax, a leading mortgage lender, predicts that residential housing prices will rise a mere 3 percent this year, broadly in line with consumer inflation.

German REITs are also expected to debut within the next year. The German property market, however, is a very different animal. Residential housing prices have fallen since 2003 as Germany has struggled with high unemployment and a stagnant economy. These factors will weigh on property market valuations for some time, according to Urban Land Institute senior resident fellow Stephen Blank. Also troubling for the REIT market, Blank notes, is the current controversy over the mispricing of open-end real estate funds sponsored by German financial institutions. Because of this, he says, "There’s been a rush by investors to get liquidity." The first German REITs may launch into an uncertain market, although in the long run, Blank believes that the REITs will benefit from that uncertainty as investors embrace the security of market pricing.

The Benelux countries all allow REITs. They have been available in the Netherlands since 1970. While the economic picture for Holland this year looks bleak, its real estate investment market remains buoyant. The economy of neighboring Belgium, which has allowed REITs since 1995, has fared better. Robust GDP growth, continued wage moderation and increases in both employment and household spending are contributing to growing demand for both commercial and residential property. Luxembourg also allows REITs; the minute size of its market reflects the small stock of domestic investment properties.

The first French REITs appeared in 2003, when they qualified for advantageous Société d’Investissement Immobilier Cotée (SIIC) tax status. The French real estate market has performed strongly in recent years and is expected to remain robust. Examples of French REITs includes Gecina, the country’s largest, with office and residential property valued at close to ¤9 billion (US$11 billion), and Klepierre, which owns 200 shopping malls.

Turkey established its own version of REITs, Gayrimenkul Yat, in 1998. The Istanbul Stock Exchange lists 10 REITs with a combined market capitalization of more than $1.3 billion. With GDP growth of almost 6 percent, Turkey is one of Europe’s fastest growing economies. The strong economy has boosted the real estate market, and REITs are expected to benefit from the sector’s improving performance. If Turkey’s bid to join the European Union is successful, it would be a major boost to its economic stability and growth.

Bulgaria introduced REITs legislation last year, but its market is tiny. Greece, Italy and Spain also allow REITs to trade.

Asia
A large proportion of Asian real estate remains in private hands or within companies that do not specialize in real estate, according to JPMorgan Chase analysts. However, the firm expects these assets to shift to REITs over time. Two of the hottest real estate markets–China and India–do not yet have REIT markets, so there is more demand than supply. In an article in the December issue of JPMorgan’s On My Mind investor briefing, its analysts wrote: "REITs attractions are based upon relatively low-risk returns and their potential to meet a need for inflation-hedged income streams that are desired by long duration funds, such as pension and life funds."

Some professional investors see the Japanese property market as now among the world’s most lucrative. "I would say that, across the world, Japan is probably the number one attractive market for us," says Michael Pralle, chief executive of Stamford, Conn.-based GE Real Estate, a $28 billion investment company. Pralle says several macroeconomic factors are trending upward and the economy shows signs of shaking off its long malaise. "When you have a market where land prices are at 25-year lows, the reversal of a 17-year trend of declining property prices and the combination of the strong macro environment, that bodes very well for the real estate market in Japan," he says. GE Real Estate is therefore investing aggressively in Tokyo and Osaka properties, and it is also looking to invest in industrial units.