Wednesday May 25, 2022

The property will be available for a buck

After some time since the adoption of the amendment, the law on collective investment, when it seems that the investment company does not seem interested in establishing so many expected real estate funds, will flash for better. Is it worthwhile for small household investors to look forward to a new investment business by the end of the year?

And to date, small investors have been able to invest in real estate only indirectly, through real estate equity funds (such as SOB Realitn Mix, now PI Real Estate Equities). But you (as it is called from the name) invest only in the action of companies operating in the field of real estate and development.

The first company to decide to offer small household investors a new form of investment in the form of a real estate fund denominated in crowns is the Czech Savings Bank. It currently establishes a 100% subsidiary REICO, which will manage real estate funds from the fourth quarter, intended not only for large investors (of which there are currently several) and for small investors.

At the end of the year, investors will be able to end through fond to earn real estate on price movements and will not have to dispose of millions of crowns. According to the representatives of esk spoitelny, there could be a lot of interest in real estate funds. This should be supported by the expected stable growth in real estate prices and especially, especially in those sectors of the real estate market, which form the basis of real estate fund portfolios. These are mainly office administrative buildings, hotels and residential buildings or logistics arenas and real estate for retail.

According to Kamil Kosman, director of the financial real estate and mortgage S section, real estate prices in R and other Central and Eastern European countries are still appropriate. Investments in unit certificates in real estate funds provide a relatively stable return over the same level of bond funds. Therefore, the amendment will conclude a collective investment company, which has made it possible to invest in real estate funds even for small investors, a good first for us and small investors.

Zklad portfolio The fund will consist mainly of real estate from the Czech Republic and Slovakia. Take projects in Hungary, Croatia, Ukraine or Romania, where the potential for future real estate price growth is very high. The fund’s fees should be equal to the equity funds and the minimum investment should be in the thousands of crowns.

What to watch out for

Investors, especially those who have not experienced it, should not succumb to the pangs of optimism. Like any form of investment (and not excluding funds), real estate funds also bear a significant amount risks. So that investors may have been convinced in the recent past that the reason for the rise in property prices may not pay off and optimistic forecasts may not mean a profit. Many properties purchased before joining the EU after May 2005 changed the owner’s price for it, it was not originally.

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It is therefore very important in which regions the fund will invest. Although the prices of real estate in our country do not offer it in the future as growth as it was years ago, however, the fund’s orientation towards Central and Entrance Europe could be interesting. In the case of a quality withdrawal, it should not be a problem to exceed the returns of EC bond funds.

The fact that real estate prices will rise steadily in the long run and not be so volatilitou, such as stock funds. However, even this does not have to be a sign of a satisfactory return, which could be seen by creditors of the Credit Suisse Real Estate Fund, a fund that invests in other real estate funds. Since its inception, the fund has achieved a cash performance of only 2.4%, which certainly does not meet the investor’s expectations. So I can invest and 30% of the funds in the action of real estate companies.

The real estate prices thus posed a risk, which is the problems of real estate, which was behind the collapse of several real estate funds in neighboring Germany. The long-term overvalued real estate in the portfolio caused a large one-off decline and the investor from these funds. For us, the valuation of individual properties should be matured by a committee of independent experts, which will be approved by the NB.

Dal risk, especially in newly established funds, is very low (or dark bottom) diversification, as one fund will be able to buy into the portfolio plates or hundreds of real estate in different regions. On the other hand, this may be suitable for those investors who have an overview of where their funds are invested. In addition, the investment company will have full control over the real estate. It will therefore depend a lot on the quality of management behind the selection of individual properties in the portfolio.

The last risk that investors have to accept with real estate funds is the relatively low liquidity associated with high real estate transaction costs. Investment companies managing real estate funds have the opportunity to restrict the sale and purchase of unit certificates and investors will be able to access the funds, for example, only a few times a year (redemption of unit certificates may be suspended for 2 years). This is one of the reasons why this type of fund is intended for investors with a long investment horizon of around seven years, or a long one.

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According to it, it is very probable that the company’s investment will determine the maximum initial investment in the amount of several million crowns. It should not happen that if one investor decides to withdraw from the fund, the company will lose too much money in the portfolio and in the extreme case will have to get rid of some real estate under inappropriate conditions, which would affect the performance of the fund. All these problems can be solved by the possibility to invest a certain percentage (minimum 20%, maximum 49%) of funds in more liquid securities, such as bonds or shares.

Let us therefore hope that the managers of the upcoming real estate funds (not only the esk spoitelny fund) will have a happy hand in selecting suitable investment problems, the domestic legislation will prevent previous similar mistakes that occurred abroad and the domestic investors will soon be able to make interesting option from the offer of investment baldness.

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