After a long wait, Italy's Finance Act has finally come into force, introducing a new vehicle for real estate investments – the listed real estate investment company, the Societa di Investimento Immobiliare Quotate (SIIQ).

The new vehicle will be based on a favourable tax regime, partially replicating those already adopted in other countries, such as the REIT (Real Estate Investment Trust, which already exists in the US and UK).

The special tax regime may only be adopted by companies based in the national territory whose securities are listed on the Italian Stock Exchange, and are able to demonstrate certain requirements, such as: (i) no shareholder shall hold, directly or indirectly, more than 51% of the voting rights in the company's ordinary shareholders' meeting nor more than 51% of the company's revenue rights; and (ii) that at least 35% of the company's shares are owned by the shareholders not being entitled with a percentage of voting and revenue rights higher than 1%.

Furthermore, the incorporating SIIQ shall distribute yearly revenues for at least 85% of the lesser amount between (i) the net profit arising from the real estate leasing – carried out directly or indirectly (through subsidiary companies); and (ii) the overall distributable operating profit.

The SIIQ is expected to be a new saving mechanism and, as it will benefit from the special tax regime, should stimulate growth of the Italian real estate market. It is likely to attract a huge segment of investments.

The real estate industry has shown an enormous interest in the development of the SIIQ and is ready to take advantage of the opportunities.

However, this interest is at least equal to the doubts about the new vehicle, as often happens during the time preceding the introduction of new instruments. Concerns surround the need to evaluate in advance the margin of effectiveness and the possible impact that the new instrument may have on the market.

The main doubts to have emerged from recent debates concern, on the one hand, the relationships with Italian real estate investment funds and, on the other, the discipline gaps resulting from the current absence of the relevant implementation rules.

In addition to the basic requirements necessary to obtain the favourable tax regime, the first difference with Italian real estate investment funds from other models overseas is due to the fact that SIIQ has to principally carry out the activity of real estate leasing. Such a concept, as defined by subparagraph 121 of the Finance Act, implies that the real estate properties owned by the company shall constitute at least 80% of company's assets and that the proceeds resulting from the said business shall represent at least 80% of the active items in the company's profit and loss account.

Moreover, real estate funds that are so-called OICRs (an acronym in Italian for collective managed fund vehicles), are subject to strict precautionary supervision controls, concerning both investment risks and the asset composition. On the other hand, a SIIQ is a listed company which, not being qualified as OICR, is only subject to the supervision of the Consob (the Italian securities and stock exchange Commission) and is therefore not subject to the measures protecting public savings; SIIQ may also take more financial risks.

For these reasons, experts have highlighted the need to introduce, even for the SIIQ, specific and autonomous precautionary supervision rules similar to those provided in some foreign countries.

Furthermore, while Italian real estate investment funds delegate the management activity to a SGR (which are the only entities entitled to manage investment funds), SIIQ is organised following the same corporate governance model used for the SpA.s (Italian joint stock companies). Therefore, the structure of the SIIQ is influenced by the internal management which is based on the administrative body appointed at the shareholders' meeting and by the directors' liability to the shareholders.

Due to the significance and the variety of the different elements between the above two instruments, the scepticism and criticisms provoked by the introduction of the SIIQ vehicle are unjustified, especially when based on the lack of alternative solutions with regard to the common funds.

On the other hand, uncertainties exist concerning the measures for the implementation of the new discipline.

We must keep in mind that the law introducing the SIIQ became effective on 1 January, 2007, but it does not come into force until the introduction of the relevant implementation decrees by the Ministry of Economic and Finance. At the end of April 2007 the relevant ministerial decree had been issued, but at the time of writing, it is still subject to review by the Council of State.

It is necessary to verify which implementation instruments will be introduced by the Treasury and try to assume with more accuracy the concrete impact of the SIIQ on the Italian real estate market.

In any case, it is important that real estate players monitor and examine carefully the development of this vehicle and the procedures according to which SIIQ will be actually implemented.

This is the only way to determine peculiarities, underline advantages, exploit its potential, and provide adequate answers not only to the rising entrepreneurial needs, but also to the needs of the investor who is becoming increasingly demanding in terms of risk propensity, liquidation and volatility of the product and of the different timing horizons of the investment.

Luca Arnaboldi and Benedetta Amisano are partners at Carnelutti in Milan.