On 13 March 2008, the European Commission published an industry report analysing the EU market for open-ended real estate funds (OEREFs), which provide investors with access to professionally managed investments in commercial and other types of property.
The overall objective is to be able to offer an EU recognised regulated OEREF to retail investors in all EU member States, on the basis of a single fund authorisation process in the home state where the fund is domiciled.
This report, and stakeholders’ reaction, will provide input to a Commission Communication on non-harmonised investment funds, scheduled for publication in autumn 2008.
Open-ended real estate funds invest primarily in high quality real estate assets, including land and buildings. As such, these funds are currently excluded from the UCITS Directive. (Undertakings for Collective Investment in Transferable Securities)
The report recommends that EU legislation is required in order to overcome EU market access barriers. It presents a set of key features which could be used as the regulatory template for competitive investment products incorporating high levels of investor protection safeguards.
On 17 June 2008, RICS together with the European Property Federation, the European Landowner's Organisation and The European Group of Valuers' Associations sent a joint recommendation to the European Commission.
In this joint recommendation, available for download at the right-hand side of the screen, RICS and the other three stakeholders support and request legislation enabling OEREFs to collect investment in host Member States as easily as they can currently purchase property there.
At the same time it is argued that the future Commission Communication should project a more balanced view of the range of real estate vehicles.
The next page gives an overview of the key recommendations made by the expert group.
For more information, please contact Sander Scheurwater at sscheurwater@rics.org
The recommendations of the expert group
The expert group recommends EU policymakers to create a new regime for OEREFs, to facilitate the cross border offer of OEREFs to retail consumers. Only an EU passport can create a Single Market for OEREFs.
The new EU OEREF regime should be modelled to the extent possible on existing national frameworks.
Modification of the UCITS Directive to provide a product passport for OEREFs would be the most efficient way to achieve cross border OEREF distribution to the retail market.
According to the expert group, there are six key features without which OEREFs would not be able to effectively function, or without which investor protection would be insufficient:
- OEREFs should have the possibility to make full use of property Special Purpose Vehicles (SPVs);
- OEREFs should be permitted to borrow up to 60% of their real estate assets;
- OEREFs should redeem units at investor request, which may be on a daily basis, but could be as infrequent as once in a quarter;
- OEREFs should maintain a minimum liquidity of 10% of their assets and install a sophisticated liquidity management system appropriate to their subscription/redemption policy;
- Properties held within an OEREF portfolio should be subject to independent and regular valuation at least once per calendar year to determine a market value of the properties, based on international valuation standards;
- OEREFs should fully disclose their pricing policies.
