A distinction must be made between two variants for real estate funds. All investors can join open real estate funds at any time. These fall into the category of mutual funds. On the other hand, there are closed funds whose investments have an entrepreneurial character, require appropriate equity and have a fixed term.
- A capital investment company initially acquires real estate with the customer money as part of the fund’s special assets.
- Open-ended real estate funds prefer to invest in commercial real estate such as office buildings and commercially used areas.
- In addition to the market shakeout, new legal regulations have also contributed to the fact that open-ended real estate funds have returned to the focus of investors and that the inflow of funds is steadily increasing again.
How an open real estate fund works
A capital investment company initially acquires real estate with the customer money as part of the fund’s special assets. As the inflow of funds increases, the real estate portfolio is increased, but properties are also being sold again. As with any investment fund, the investor acquires fund units with his investment. In accordance with the rental income, he receives an annual distribution on his shares. In addition to the rental income and any sales proceeds, he also benefits from the depreciation on the properties. Open-ended real estate funds show a slow but steady increase in value, which results from the valuation of real estate. Shares in open-ended real estate funds are usually issued with an issue surcharge of five percent. Since these are shares in an investment fund,
The investment focus
Short for REF by abbreviationfinder, open-ended real estate funds prefer to invest in commercial real estate such as office buildings and commercially used areas. They value long-term rental contracts, if possible with authorities or large companies. The private housing market harbors too many risks with regard to the continuity of rental income. However, investors should pay attention to whether the fund invests exclusively or predominantly in Germany, in Europe or worldwide. The regional focus is not the same for all funds.
The recent history of open real estate funds in Germany
Concrete gold, as it is also often called, has been experiencing a renaissance since 2013. It had been a tough time for the industry. With the temporary suspension of trading in Grundbesitz Invest by Deutsche Bank subsidiary Real Testate, a phase began in which numerous other funds also had to be closed. Some of them are still being processed today. The reason was that some of the properties were valued too highly and the real estate crisis in the USA led to high vacancies and rental losses. The value of the units sank significantly, investors returned more units to the fund companies than they could buy. The result was almost a collapse of this asset class. The market was cleared by nearly 50 percent of the funds that were active in 2005.
Real estate funds: conservative investors’ favorite
Until then, open-ended real estate funds were a real alternative to fixed-term deposits or other deposits for conservative investors. For years they pampered savers with above-average dividends and healthy increases in value. At times, open-ended real estate funds were even seen as a safe investment. This meant that a guardian would be allowed to invest his foster care’s money in such fund shares. Only a few forms of investment – savings books, overnight and fixed-term deposits, life insurances and public sector bonds as well as Pfandbriefe – are considered to be gilt-edged.
New legal regulations offer security
In addition to the market shakeout, new legal regulations have also contributed to the fact that open-ended real estate funds have returned to the focus of investors and that the inflow of funds is steadily increasing again. A solid fund is still a good investment for participating in the real estate market, which is in some cases strong, without having to purchase a specific property. Open real estate funds also offer small savers the opportunity to participate in the advantages of investing in real estate. Until the amendment to the law, the fund shares could be returned to the respective fund company at will. Thereafter, the risk of a renewed financial bottleneck at the fund companies was excluded.
The regulations in detail
The reference date July 21, 2013 plays a special role when purchasing shares in open-ended real estate funds.
- Investors who bought shares after this date must hold their shares for at least 24 months before they can be redeemed.
- The return is preceded by a one-year notice period. The termination is irrevocable.
- Notice of termination can be given during the minimum holding period, but no earlier than 12 months after acquisition.
- The fund companies no longer have to redeem the units every trading day.
- An exception applies to fund units acquired between January 1 and July 1, 2013. In this case, a return is possible at any time. The one-year notice period only applies to volumes in excess of 30,000 euros.
- Fund units that were acquired before January 1, 2013 are free of restrictions when they are returned.