SLOVAKS will soon be able to invest in real estate through a special type of mutual fund thanks to an amendment to the Act on Collective Investment, which allows financial institutions to offer units in new real estate funds.
Several financial institutions have applied to the National Bank of Slovakia (NBS) for a licence to offer these funds, but so far the NBS has not issued any licences. Nevertheless, the first real estate mutual funds could appear at the end of this year or at the beginning of 2007.
Real estate funds offer a relatively stable investment with lower volatility, which is suitable for more conservative investors who have long-term investment horizons. The law sets the initial minimum investment in real estate funds in Slovakia at €3,000.
The funds will also be allowed to invest on foreign real estate markets, but financial houses predict that investments in domestic real estate will be more popular in the beginning.
Maroš Ďurik, director of Across Wealth Management, told The Slovak Spectator: "From the point of view of Slovak investors, it is quite an important change because the possibilities of participating in the growth of the domestic real estate market are limited at the moment.
"A direct investment in property requires quite a high initial investment, while if people want to invest indirectly they have to do so through foreign real estate funds or development companies that are listed on foreign stock exchanges. We see the amendment as a very positive change."
Tatra Asset Management is one of the companies that submitted an application for a licence to set up a special real estate fund. Ján Kováč, vice-chairman of its board of directors, said: "We consider real estate investment to be a significant factor in setting an investment portfolio strategy. It allows us to diversify investment risks because the value of real estate is usually influenced by factors other than just those influencing the value of standard assets such as bonds, equities, and other financial instruments."
Asset Management of Slovenská Sporiteľňa is also interested in offering this kind of mutual fund, and is now waiting for the green light from the NBS. Zuzana Kardelisová, the company's sales manager, explained that investors should exercise the same caution with real estate funds as with other types of mutual funds.
Potential investors should consider the possible risk, the liquidity of the investment, and their investment horizon, which in this case is longer than in other types of mutual funds, Kardelisová said.
Financial houses concede that the initial investment of €3,000 could limit the pool of potential investors for real estate funds.
"We would be happier if clients with a lower initial investment could also invest in such a fund. We hope that this limitation will gradually be phased out," Kardelisová said.
Ďurik agreed that the rule was restrictive. "Many investors will not able to afford to buy real estate funds for their portfolios," he said, adding that these customers would have to invest indirectly through mutual funds that have real estate funds in their portfolio.
Despite the limitations caused by the high initial investment, fund administration companies are not worried about the future of real estate funds.
"We believe that interest in investing in these types of funds will be high," said Kardelisová.
Ďurik predicted that competition on the market would be strong, as many Slovak fund administration companies have expressed interest in creating real estate funds.
"The limitations in the law are not such that they will significantly limit the entry of new players on the market," he said.