Banking reform removes punitive taxation on foreign lenders, writes David Hatcher.
A radical change to Italy’s banking laws could lead to a resurgence in real estate lending in the country and help aid recovery of its property market as the results of the ECB’s Asset Quality Review (AQR) loom.
The “decreto competitività” law, passed in August, allows banks without a banking licence and business on the ground to lend against Italian property for the first time without incurring a punitive 26% tax on interest payments received. The law change also scraps a previous 3% tax on the borrower should their loan be syndicated.
Previously, non-domestic organisations could only gain exposure to Italian real estate debt in a tax-efficient manner by buying bonds or through CMBS issuance.
Legislation paving the way for insurers and funds to lend in Italy is also in progress. For now, insurers and funds must use a bank to retain a 5% stake in a loan, but may be able to lend directly if they can prove they have the appropriate internal risk management structures expected in a bank.
With more financiers prospectively active in Italy as its property market improves, investors may take a more bullish view of the country. This is particularly timely given the expected completion of the AQR this month, which is likely to force Italy’s banks to sell assets to shore up balance sheets.
Emanuela Da Rin, partner at law firm Bonelli Erede Pappalardo, says: “We have effectively had a legislative revolution. We expect many new lenders to enter Italy in the near future as a result.”
Overseas lenders could previously lend in Italy and avoid the taxation by setting up a domestic subsidiary, abiding by Italian corporate law and raising funds for lending within the country, a costly and restrictive process that deterred many financiers and worsened the country’s property downturn.
“The law was bad for real estate because we suffered a particularly big reduction in lending after the crisis,” Da Rin says. “Five or six banks dominated and as there was little competition, they were very exposed and there were no new lenders to come in.”
Allianz prepares to pounce
Allianz, which focuses on France and Germany for real estate lending, is one insurer keen to expand in Italy as a result of the amendments. “We are preparing to extend our Italian real estate investments beyond equity into debt,” says Roland Fuchs, head of European real estate finance. “This is possible not only for Allianz’s Italian investors but also its non-Italian investors. It is a breakthrough and a great reform.”
While legislation dictating how insurers can enter the market is still being finalised, Fuchs is confident that Allianz will be able to operate independently in Italy and that increased liquidity will have a positive impact on the subdued market.
“I don’t want to rule out working with banks but the legislation suggests it will be possible to carry out direct lending, which is very positive,” he says. “Financing liquidity is always a precondition for investment and if we see that pulled along, the number of deals will go up and price corrections will occur.”
Banks that have set up Italian subsidiaries,such as ING, face increased competition, but will also encounter a number of advantages. “Despite the increased competition it is good for the country’s property market,” says Massimiliano Rossi, general manager of ING Real Estate Finance in Milan.
“We are already acting in a different way. Syndication is possible for the first time and we can do more business, offering larger underwritings, as we can sell on to overseas lenders. Previously we had to rush into a club deal, often with the same few parties.”
For those not already established in Italy, Rossi claims that the likes of ING will maintain a competitive advantage.
Massimo Tivegna, head of Unicredit Bank’s real estate network, believes: “We will probably see many classic lending partnerships, where new qualifying lenders rely on the experience of domestic banks to structure and manage loans. But the new regulation may also foster more synergic relationships between banks and new players, to the benefit of the Italian property market.” ■