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CONSTRUCTION & REAL ESTATE - IF THE FINANCE MINISTRY GETS ITS WAY, SLOVAKS WILL BE ABLE TO INVEST IN REAL ESTATE MUTUAL FUNDS IN 2006

Higher yield with less risk

THE SLOVAK investment market is anxiously awaiting the arrival of real estate mutual funds. If a proposal by the Finance Ministry is approved, Slovaks will be able to buy bits and pieces of property through mutual funds starting in February 2006.

THE SLOVAK investment market is anxiously awaiting the arrival of real estate mutual funds. If a proposal by the Finance Ministry is approved, Slovaks will be able to buy bits and pieces of property through mutual funds starting in February 2006.

"Not everyone is able to afford a shopping centre or administrative building, but he is able to participate in large development projects by buying units through real estate mutual funds," Katarína Lindbergh, investment manager at Czech and Slovak Investment Advisors, told The Slovak Spectator.

According to Lindbergh, real estate mutual funds enable a wide cross section of people to invest in real estate and use it as a form of savings.

The Finance Ministry's proposal, which makes adjustments to the Act on Collective Investments, would enable investors to buy real estate and shares of real estate companies, including foreign companies, by investing in mutual funds.

As a safeguard, property purchases through mutual funds would be restricted to investments that are commonly tradable and proven to bring regular and long-term yields.

Maroš Ďurik, general director of Across Investment Services, explained that real estate mutual funds are based on investing relatively small amounts of money into a fund that buys and sells real estate.

"Compared to direct investments in property, real estate mutual funds have several advantages: a relatively low starting investment (several thousands of crowns), a lower risk, professional management, and the possibility of faster liquidity of the shares," Ďurik said. Then he added, "Of course, it is not always the rule."

Real estate mutual funds invest in shopping and business centres, administrative premises, hotels, logistic parks, industrial premises, storage premises and others.

Residential property investments are rare, according to Lindbergh.

Both Across Investment Services and Czech and Slovak Investment Advisors say the Slovak real estate market offers ample investment opportunities for stockbrokers and those who select investments for mutual fund portfolios.

They are equally confident that Slovaks will be interested in investing in real estate mutual funds.

"Slovaks are astute when it comes to evaluating real estate and I expect this positive trend will continue," Lindbergh pointed out.

According to Ďuriš, Slovakia represents an attractive market thanks to the construction boom in recent years as well as the country's accession in the EU. At the same time, he emphasized that anything could happen.

Real estate mutual funds often generate attractive yield-to-risk ratios. Risk stands at the level of combined bond-equity fund (relatively low), while the yield stands at the level of equity fund (high), Ďuriš explained.

Real estate funds respond weakly to volatility on the financial markets, and their correlation to other types of assets is very low. "Adding a real estate fund into an investor's portfolio can lower the risk of his or her portfolio and at the same time increase its yield," said Ďuriš.

Lindbergh of Czech and Slovak Investment Advisors added: "Real estate funds invest in assets that generate a relatively stable yield and thus they bring to their owners regularly paid dividends."

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