No respite for Europe property in EU derivs bill

* No exemption for Europe prop. sector in EMIR bill -Langen

* Further exemption will be subject to investigation

By Karen Foster

LONDON, Feb 17 (Reuters) - European commercial property's continued inclusion in a proposed law to regulate interest rate swaps may see it facing an up to 100 billion euro ($135.3 billion) cash call, and may amplify the impact of a further sectoral downturn, experts said.

The European property sector has been seeking an exemption from the proposed European Market Infrastructure Regulation (EMIR), which would see it have to clear interest rate swaps via external central clearing houses. [ID:nLDE70B1P4]

Real estate investment trusts (REITS) are often required to hedge the risk on property loans with an interest rate swap, which is a means of exchanging a floating interest rate for a fixed rate.

British Property Federation has said if the sector is not excluded from EMIR, European property companies could face a 55-100 billion euro cash call to clear swaps. Chatham Financial said in November the cash call could total 65 billion euros.

Now, EMIR rapporteur Werner Langen said that, despite the industry's claim that being subject to the proposed legislation might damage its business, he had not proposed an exemption in his draft report, issued last week.

It was still possible for European property companies to be excluded from the final version of EMIR, Langen told Reuters in a statement.

"I'll continue to examine all positions and ideas and discuss them with the shadow rapporteurs and my colleagues in the ECON (Economic and Monetary Affairs) Committee," said Langen, a German centre-right member of European Parliament.

Nicholas Scarles, finance director at property investor Grosvenor [GRO.UL], said it would be difficult for the EU to exempt property from EMIR without giving pure derivatives traders a loophole. Excluding the sector from EMIR could be potentially damaging for the industry if it did not, he said.

"It seems to me odd that a provision that is designed to mitigate against a market crash could actually create or indeed amplify for the property sector the impact of a crash," Scarles told Reuters.

BPF finance director Peter Cosmetatos said while Langen's report was disappointing, it was not a total rejection of the industry's call for an exemption. BPF represents UK REITS, including Land Securities (LAND.L), Hammerson (HMSO.L) and British Land (BLND.L).

"There's evidently more work to be done. And I think that part of that work is about providing some sort of degree of both education and comfort to policymakers that making special provisions in a very small number of cases, which must include real estate, is something they can do safely," Cosmetatos said.

The European Parliament and the EU states will hold talks in coming months to reach a deal on a final version of EMIR, which follows a pledge made by the world's top 20 economies to make derivative trading less risky and more transparent by end-2012. (Additional reporting by Huw Jones; Editing by Andrew Macdonald) ($1=.7390 Euro) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)