Investment Incentives – Assessing international real estate programmes

In 1900, just 15 per cent of the world’s population were city dwellers. Today, more than half of humanity lives in urban areas, and by 2030 this figure is expected reach 60 per cent.

A recent report from Euromonitor, predicts that, by then, the world will have 39 megacities, with a population of more than 10 million each. The report estimates they will house 9 per cent of the global population and contribute 15 per cent of the world’s GDP, while taking up about 3 per cent of global land mass.

These numbers highlight the increasing pressure being exerted on the infrastructure of fast-growing urban areas; whether that is transport, services or housing. They also indicate the drain of resources and human capital that will be experienced by those cities, towns and rural areas that are not lucky enough to be considered ‘mega.’

In established mega cities like New York and Paris, there are already extensive regulations in place to control both residential and commercial building. Similar restrictions are in the process of being implemented in newer, faster-growing mega cities such as Shanghai or Mumbai. Land is so valuable in these places, that high taxes are levied on building projects with purely profit-driven motives, meaning real estate investors must sign up to incentive schemes in order to mitigate these punitive taxes.

The schemes are designed to ensure that housing remains affordable for the people who live in the city. Many are extremely complex to negotiate. One good example of innovation comes from Germany, where smaller companies can partner with others to construct affordable housing for key staff. Financing is provided via loans and grants from cooperative members, credit institutions and public development banks. One good example of complexity comes from New York, where signing up to an inclusionary housing scheme includes a zoning bonus. This bonus can be sold-on to other developers at a profit to finance the commitment to build affordable housing.

The flipside of the concentration of humanity and wealth in urban centres, is the decay and demise of smaller economies. While innovative schemes
are being launched to encourage controlled real estate investment in areas of high demand, there are also schemes designed to encourage investment into areas of high unemployment and low economic growth.

Many of these incentives are tied into citizenshipvisas, enabling governments to access investment capital from overseas. An expanding global population is likely to make citizenship of developed countries, such as the USA, more attractive. Innovative governments are using this demand to funnel much needed investment capital into deprived areas. The EB-5 Visa in the US, offers citizenship to foreign individuals who invest USD 500,000 and create more than 10 jobs in certain regions.

Other real estate investment incentives are tied into tax breaks and allow investors to find reductions on capital gains tax or real estate transfer tax (RETT). One such example from the US, is the New Market Tax Credit Programme. It attracts investment for real estate projects, community facilities, and operating businesses through the grant of federal income tax credits to private investors investing in low-income communities.

The range and complexity of real estate investment programmes is set to grow exponentially, as countries compete for international capital and look for new ways to control construction to suit their own needs. International investors who wish to spend their money efficiently, will need the right schemes to suit their specific proposals. The only way to do this properly is to consult an expert advisor.

In the following pages, you will hear from six legal professionals, who have proven experience of guiding multi-national real estate deals to success. They offer the benefit of their deep knowledge and expertise, and provide an update on recent and current regulatory developments in their respective jurisdictions.