Real estate funds were only recently introduced into Slovak law, but already the act that covers these funds, the Act on Collective Investment, has been amended. Effective from May 1 2007 the amendment has introduced several big changes.
Restrictions regarding initial investment have been abolished and the allowed scope of investment has been extended.
The requirement to invest a minimum of €3,000 when investing in a real estate fund has lapsed, leading to the abolition of the distinction between a common retail investor and the typical investor, for whom this investment type was intended. This change is surprising, as this distinction was emphasized in the Act just months ago. Now, the need to encourage investment into real estate funds prevails over the protection of share fund owners with inappropriate risk profiles or investment levels. Until May 1 2007, the protection of the common retail investors prevailed, that is, it was not possible to invest into these specialized funds financial resources with a contribution lower than €3,000.
A real estate fund's investment allocation possibilities were extended. The list of possible investments is no longer definite but is demonstrative. The real estate fund's asset may be invested not only: (a) in real property, including equipment, for the purposes of its administration and sale; and (b) through capital participation in real estate companies; but also (c) in other assets fulfilling the stated criteria that have a close connection with the real property market (given their economic background) and (d) in assets listed in Article 44(1) of the Act (for example, securities, and financial derivatives). The change allows real estate funds to invest in assets that are in line with the aims and objectives of their investment strategy.
The defined scope of a real estate company's business has been modified. To ensure that the scope of business can be entered into the Commercial Register, the scope of business is specified as: (a) acquisition of real property, including equipment; (b) lease of real property and providing more than basic services related to the lease; (c) mediation of sale, lease and acquisition of real property (real estate activity); and (d) sale of real property. Also, building construction and modification may be registered as a real estate company's scope of business. Other activities may be included in the scope of business only if they are required for the activities of the real estate company under this Act.
Formerly only a capital participation in the real estate company that owned no more than three pieces of real property could be acquired. This restriction has been abolished.
Provisions taking into account specialties regarding newly created real estate companies were inserted (relating to the fact that new real estate companies do not yet own real property), granting certain exceptions when a capital participation in a new real estate company is acquired.
The volume of possible loans that can be lent from the real estate fund's assets increased to 50% of the value of the real estate fund's assets (originally 25%).
This amendment has ensured access to real estate funds for a wider group of potential investors due to the abolition of the initial investment limit. Also some clarifying provisions were adopted (for example, regarding the scope of business of the real estate company). This amendment, aimed to encounter the problems with implementation of certain provisions of the Act (after introducing real estate funds in May 2006), should stimulate better real estate fund operation, leading to faster development and increased performance.
Barbara Kubinova Bokesova and Martin Abraham