How do you value a real estate or property holding company? Learn how property value, tax liabilities, debt and cash affect the value of its shares.
In Belgium, it is quite common to sell the shares of a property company instead of transferring the real estate itself through a notarial deed. For both seller and buyer, a share transaction can offer significant advantages.One of the main practical benefits is that ownership of the shares can be transferred immediately once the purchase price has been paid and the shares have been transferred. In a traditional real estate transaction, however, completion typically takes three to four months between signing the sale agreement and executing the notarial deed.
Since the real estate itself is not being sold, any capital gain on the property is not realised within the company. Instead, the seller receives the purchase price for the shares of the real estate purpose company or property holding company directly. Following the introduction of Belgium's new capital gains tax on shares, tax planning has become increasingly important. In certain situations, obtaining a valuation before 31 December 2026 to establish the value of the shares as at 31 December 2025 may significantly reduce future taxation.
Naturally, any prospective buyer will carry out a thorough due diligence review of both the company and its underlying real estate. The objective is to identify any legal, tax or technical risks, as well as hidden liabilities or outstanding obligations. Nevertheless, the key question always remains the same: what are the shares actually worth?
The valuation generally starts with determining the current market value of the real estate. This value is usually established through an independent appraisal or by the price agreed between the parties. The book value of the property is of limited relevance, as it is often substantially lower than its current market value.
The next step is to calculate the company's latent tax liability. If the buyer decides to sell the property in the future, the company will be subject to Belgian corporate income tax on the capital gain realised. If the remaining profits are subsequently distributed to the shareholder, additional withholding tax will generally be due. As a result, buyers are typically unwilling to pay the full market value of the underlying real estate.
In practice, the latent tax liability is often estimated at approximately 36% of the difference between the property's market value and its book value. This percentage reflects the combined effect of Belgian corporate income tax on the future capital gain and the withholding tax payable when profits are ultimately distributed to the shareholder. Where distributions are made through a liquidation reserve, the effective additional tax is currently around 14.5%. The actual latent tax liability will, of course, depend on the company's specific tax position and the intended distribution strategy.
The buyer, however, also benefits from the transaction. A direct acquisition of Belgian real estate is generally subject to registration duties of 12% in Flanders and 12.5% in Brussels and Wallonia. Since these transfer taxes do not apply to a share transaction, the buyer achieves a significant tax saving. In practice, this saving is usually deducted from the latent tax liability when determining the final purchase price. Consequently, the valuation adjustment is often considerably lower than the latent tax liability alone.
Any outstanding financial liabilities must also be taken into account. Mortgage loans, investment loans and other external debts reduce the value of the shares on a euro-for-euro basis.
Finally, attention should be paid to any cash held within the company. Many property companies accumulate substantial cash reserves from profits that have already been subject to corporate income tax but have not yet been distributed to the shareholders. This cash is rarely valued at its full nominal amount because future distributions will generally trigger Belgian withholding tax. Depending on the company's circumstances, this tax may range from 5% to 30%. Consequently, many buyers prefer that excess cash be distributed before completion, for example through a dividend, a liquidation reserve or, where possible, a capital reduction.
The value of a property company therefore extends far beyond the book value shown on its balance sheet. A proper valuation should take into account the current market value of the real estate, the latent tax liability, the registration duties avoided by the buyer, the company's outstanding debts and the tax treatment of any available cash. By considering all of these elements, buyer and seller can agree on a fair and economically justified purchase price.