Risk of transfer tax hike a spur to close deals in Dutch market

Q4 could see a flurry of activity in the Dutch market as investors rush to close deals before new rules kick in, delegates heard at Real Asset Media’s Netherlands Investment briefing, which took place recently at Schroders Capital’s offices in London and online on the REALX.Global platform.

Simone Wijngaard, Senior Associate, Greenberg Traurig

“Many parties will want to put their real estate assets on the market before the end of the year”, said Simone Wijngaard, Senior Associate, Greenberg Traurig LLP. “It will be busy in the legal environment. We expect a sell-off”.

The reason is the expected increase in the real estate transfer tax for investors, which had already gone up from 6 to 8% on January 1st 2021 and is now forecast to go above 10% from January 1st 2023.

“Anyone who is interested in investing in the Dutch real estate market had better do it before December 31st”, said Pieter Willem Akkerman, Co-Head Real Estate Netherlands, Schroders Capital. “There will be many parties in selling mode”.

ESG is a focus for all investors as regulations are set to get even tighter. From January 2023, all offices have to have at least a C label, while for resi a D label will be the minimum requirement from 2030.

“We’ve seen a shift in investor demand as they only want to buy green buildings”, said Wijngaard. “ESG is a focus in almost every transaction, but we do strict due diligence and check the actual sustainability credentials of every asset, as we need to watch out for greenwashing”.

There’s still a lot to be done in the Dutch office market to meet that end-of-year deadline for compliance.

“Only 9% of offices are above C, 40% are at C and 31% have no label at all”, said Akkerman. “So significant capex will be needed over the next few months to avoid the risk of fines or even the office being closed down by the authorities. This will inevitably impact office valuations”.

Schroders’ strategy has been to focus on city locations near railway stations, which make it easy for workers to go back to commuting to the office.

“Our operational excellence concept means that we always strive for an A label for our offices”, said Akkerman. “Already almost 100% of our portfolio is A or B label”.

The financing part of the equation is also easier for assets that comply with the new regulations.

“Nearly all the offices we’ve financed meet the sustainability requirements”, said Rogier Bos, Real Estate Finance Benelux, Berlin Hyp. “That also ensures that the building remains competitive and attractive over time. But residential tends to be of a higher quality in the Netherlands, while offices still have a long way to go”.