European Property Firms Seek Immunity From Derivatives Crackdown
European real-estate companies are seeking exemption from a law that could force them to set aside billions of euros by treating them like derivatives speculators.
Two groups representing about 520 property firms asked members of the European Parliament to exempt them from proposed derivative trading regulations that would require cash collateral to cover bets on interest-rate movements, according to a letter seen by Bloomberg. The companies argue that they don’t engage in the kind of speculation the law seeks to control.
“The tightened requirements, which are intended for the financial sector, are not justified here and are very likely to be counterproductive,” the companies said in the letter addressed to members of the European Parliament’s economic and monetary affairs committee.
Real-estate investors use interest-rate swaps to ensure a fixed rate when taking out a floating-rate loan to buy a building. It helps guarantee that a property’s rental income will cover loan repayments if rates rise unexpectedly. Under the proposals, a payment could be demanded if rates move in the opposite way than the swap anticipates. The figure may reach 65 billion euros ($93 billion) in Europe, adviser Chatham Financial Europe Ltd. said in a report in November.
“We are adamantly against it,” said David Peters, group treasurer of Grosvenor Group Ltd., the property company owned by the Duke of Westminster’s family trusts. “Setting aside cash would make a stable and predictable industry in terms of cash flow hugely unstable.”
Peters said the legislation would hurt funds more than property companies because they don’t have access to as much bank debt.
Europe should follow the example of the U.S.’s Dodd-Frank financial reform act, which is likely to exempt real estate derivatives, the groups said in the letter.
The committee is scheduled to vote May 24 on whether to include property companies in the legislation.
The British Property Federation and German group Zentraler Immobilien Ausschuss signed the letter, citing the support of three Europe-wide property organizations.
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