There are many occasions of investors seeking safe investments with low risk and stable returns. Bank deposits have zero interest rates and investing in real estate is a good option, especially for more conservative investors.
Many investors buy real estate to earn money through rental income, appreciation, and profits generated by business activities that depend on the property. We repeatedly observe that every client has a small number of properties trying to achieve profit while facing tenants, repairs, evictions, damages, and other everyday situations.
After implementing ENFIA in 2014 in Greece, the cost of owning real estate became much higher, especially when the real estate exceeds a value of 600,000 euros. It is now unprofitable for a natural person to accumulate real estate, something that used to happen a lot in the past.
In Greece, there is legislation since 1999 that allows the establishment of a Real Estate Investment Company, something that happened in Europe much later. This corporate form allows investing in real estate in the form of shares. So we have the advantages of investing in real estate without the disadvantages.
Advantages of AEEAP:
1) Low risk, as the company invests in real estate and is not a property developer.
2) Better leases, as it has much better properties and creditworthy tenants.
3) Lower property management costs, as there are organized structures to manage all its properties more effectively.
4) Greater transaction power, due to its size, it offers much more possibilities.
5) Dividend returns, Greek law requires AEEAPs to distribute at least 50% of their profits as a dividend, without a 5% dividend tax.
6) Tax benefits, AEEAP does not pay capital gains tax, property transfer tax, dividend tax, income tax as they pay tax on their investments.
7) Bigger profits, as the tax advantages are many.
8) Great flexibility, as the investor can sell 10% of his shares in one day, instead of a natural person who can not sell part of the property and any sale takes time.
9) Transparency, the legislation obligates AEEAPs to appraise their real estate by certified real estate appraisers and provide certified financial statements from auditors every six months. It also prohibits the purchase of real estate above 5% and the sale below 5% of the appraised value.
Disadvantages of AEEAP:
1) Investment amount, the minimum amount of an AEEAP is 25 million euros.
2) Stock Market, the shares of AEEAP must be listed on the stock exchange within two years of obtaining the license.
3) High-value real estate, the properties included in creating AEEAP can not have a value of fewer than 100,000 euros each.
4) Management costs: For the company to operate appropriately and legally, the management costs are higher than small real estate companies.
5) Difficult to invest in, as it is difficult for small investors to acquire shares.
It is essential to create an AEEAP with medium and small investors who will gain considerable advantages compared to investing in real estate on their own. Creating an AEEAP and outsourcing its management to a team of specialized executives maximizes the return on real estate and increases their value, which is almost impossible for a private real estate investor.
The Greek economy will also get benefited, as AEEAPs use real estate more correctly and efficiently. The real estate market remains fragmented, does not offer what it could if it operated in an organized manner, and it cannot achieve concentration and growth in larger schemes.
A great advantage for the Greek economy, developing the AEEAPs, would be to benefit from the taxes that will result from the repairs and maintenance of real estate by the branch professionals. As known, different services on privately owned real estate are often done without invoices. So when an AEEAP is using these services, the issuance of invoices is mandatory, and as a result, it benefits the economy.
Thanks to our partner Christos Triantafillopoulos, the Chief Accounting Officer at Aegean Consulting, for this very informative article.