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viernes, 02 de octubre de 2020

 

WHAT IS A SOCIMI?


The term SOCIMI responds to the abbreviations "Public Limited Investment Companies in the Real Estate Market". Its regulation is based on Law 11/2009, with subsequent modifications (Law 11/2009 was a draft law). Currently they represent one of the real estate investment vehicles.


A SOCIMI is a company with a commercial nature and of an anonymous type, with a minimum share capital of 5 million euros. The term "Listed" already indicates that your shares must be listed on a regulated market (a Stock Exchange.); It is one of the requirements of SOCIMIs.


In addition to this, SOCIMI companies must have a series of characteristics that make them different from other listed companies.


If we want to explain what a SOCIMI is, in principle, we must start from the basis that they must be constituted in accordance with the current legal regime (Capital Companies Law) and registered in the corresponding Mercantile Registry.


On the other hand, its corporate purpose must be investment in urban real estate (homes, buildings, commercial premises, offices, garages, industrial buildings, etc.) for its subsequent lease. When we refer to real estate investment, we include the acquisition and promotion (construction) of real estate (the promotion includes rehabilitation of buildings).


Another requirement of a SOCIMI is that they must have a portfolio of real estate assets (at least one) and obtain income from the lease of them. At least 80% of your property portfolio must be earmarked for this purpose. Your real estate assets may be outside of Spanish territory.


Likewise, they may have interests in other companies or real estate investment funds. They are residents in Spanish territory or not.


In short, SOCIMIs were born as a Spanish adaptation of the so-called REITs (Real Estate Investment Trust). These types of societies took place in the 1960s, for the purposes that we are going to see below. They are originally from the United States.

 WHAT IS A SOCIMI FOR?


As previously mentioned, SOCIMIs are a real estate investment vehicle. Its shares are listed on a regulated market and therefore the investor interested in participating in said company (and, indirectly, in the real estate market) should only go to the Stock Exchange on which the SOCIMI in question is listed and buy its shares . Any investor can buy shares in a SOCIMI.


Its main function, the reason for its birth, is to make investments in large-scale real estate accessible to the small investor, with a large dose of transparency and liquidity.


In other words, they democratize this type of investment: they ensure that retail investors can have the same conditions as large fortunes.


There are several problems of investment in real estate. As a general rule, they are considered as very little liquid and opaque. Let,s analyze this statement and review what obstacles SOCIMI companies overcome.


OPACITY OF THE REAL ESTATE MARKET


On the one hand, the real estate market is not a regulated market. The information regarding the prices and characteristics of the assets is not as easy to obtain as when it comes to quoted shares or buying investment funds. The real estate market can be classified as an opaque market. The investor does not have sufficient information to make reasoned investment decisions.


Real estate investment vehicles (such as SOCIMIs or real estate investment funds) provide transparency to real estate investments. They must present accounting with a certain periodicity (every 6 months according to the regulations of the SOCIMI) and adapt to the stock market regulations.
In addition, they are under the supervision of the National Securities Market Commission. All this in order to protect the investor.

 INVESTMENT LIQUIDITY


On the other hand, transforming a real estate asset into money is not quick and, sometimes, it is not easy (unless the price is lowered a lot). Therefore, the real estate market (in addition to being opaque) is considered illiquid.


We will all agree that when it comes to selling a home it is not easy to find a counterpart. This disadvantage can also be supplemented if we invest through the aforementioned real estate investment vehicles such as SOCIMIs or real estate funds. They present a lower liquidity risk, thanks to the listing of their shares on an organized market.


OTHER ADVANTAGES OF INVESTING IN SOCIMI COMPANIES


For the rest, we could also include the heavy outlay of making a direct investment in the real estate market. Normally, we will have to resort to debt to carry out the investment (few people can buy a home without having to apply for a mortgage). This characteristic converts the purchase of real estate into leveraged investments.


If you decide to invest in the real estate market through a SOCIMI or a real estate fund, you can buy as many shares or participations (respectively speaking) as capital we have or decide to invest, resorting to financial leverage is optional.


The basis of SOCIMI is that they must be listed on the Stock Market. This supposes an injection of liquidity and transparency; making them, together with real estate investment funds, an interesting mechanism to participate in the real estate market.


There are many retail investors who decide to put their money in real estate without having a complete knowledge of its operation and management of the assets that make up their portfolio. This does not happen neither in real estate investment funds nor in SOCIMI companies: they make it possible to invest in real estate assets managed by a professional team.


Diversification in different properties is also a decisive factor for a SOCIMI and a real estate investment fund. Suppose that a private investor has a rented home and that the tenant breaches his contract and stops paying the corresponding rent. In this situation, the investor must solve the problem by legal means (slow and expensive), without receiving returns on his investment and with the financial charges that this may entail (mainly the mortgage payments).


This situation can also happen perfectly in a company of this type, except that the financial blow is cushioned because the company has other sources of income, from various leases. The risk is under control, thanks to the professional management provided by a SOCIMI (or a real estate investment fund).

SOCIMI DIVIDENDS


The legislation that regulates SOCIMI also requires that this type of company must pay back its shareholders.


In other words, SOCIMIs have a legal obligation to distribute dividends. 80% of the profits from the rental income of the properties must be distributed among the shareholders. This means that the investor has the security that his investment will be rewarded: he will receive periodic income.


Furthermore, if the company decides to sell an asset, 50% of the profits must also be shared among the shareholders. In the case of profits obtained from investment operations in other REITs or REITs, the distribution of profits will be 100%.


In another order, the full amounts of dividends or shares distributed to shareholders have a special tax of 19%. This applies to those shareholders who do not have a participation in the capital stock of more than 5% and such dividends are exempt or taxed at a rate of less than 10%.


TAX EXEMPTIONS


SOCIMI companies, like investment funds, enjoy tax advantages.


It is important for the development of the real estate market to bring it closer to small investors, with all possible guarantees. SOCIMI companies, thanks to their requirements and characteristics, make it possible. But, in order to carry out this work effectively, the Law that regulates SOCIMIs provides in article 8 that, in compliance with a series of requirements, a very favorable special tax regime is applied to these companies. Which makes investment in SOCIMIs more attractive.


According to the latest amendment to the SOCIMI Law (Law 16/2012) they have a tax rate of 0% in Corporation Tax. To do this, they must comply with a permanence of the leased properties for a period of 3 years. If this period is not met, they will be taxed in accordance with the general regime, applying the general tax rate of Corporation Tax.


They also have a 95% discount on the Tax on Patrimonial Transmissions and Documented Legal Acts.

Fundamental for the development of its activities.

SUMMARY OF REQUIREMENTS FOR SOCIMI


All tax advantages are subject to compliance with the requirements imposed by legislation, which we have been seeing along these lines.


We summarize and expand them below:


  •         • Obligation to list on an organized market. If the company is excluded from listing, it                    will  lose the right to apply the tax benefits.

  •        • The fulfillment of the obligation to distribute the dividend that we have mentioned and              in the legally foreseen terms.

  •        • Have 80% of its real estate portfolio offered for urban leasing.

  •        • Your real estate assets must remain on your balance sheet, in operation through a ease,            for a minimum period of 3 years.

  •        • They must have at least one property (previously there were 3).

  •        • They must have a minimum share capital of 5 million euros.

  •        • Legal reserves cannot exceed 20% of the company,s capital stock.

  •        • The free float must be at least two million euros or 25% of the share capital. In other                words, this part  must circulate freely in the financial markets.

  •        • Reports and accounts must be submitted every 6 months.

As can be seen, investing in the real estate market through the purchase of shares in SOCIMI companies can be interesting for the retail investor. The transparency, the protection provided by the National Securities Market Commission, the perception of dividends and the tax benefits of these companies (which makes their profits - and, therefore, their dividends - increase) make them like a vehicle investment property, along with mutual funds (which also have a number of advantages).

Investing in a SOCIMI is no different than buying shares in any other listed company.

 
 
 

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