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First Czech real estate fund soon to arrive

ČNB clears the way for small investors to get into property

By František Bouc
Staff Writer, The Prague Post
February 28th, 2007 issue

Speculative trading in real estate has long been available to major foreign investors, but it has largely missed the small investor in the Czech Republic — until now.

The Czech National Bank (ČNB) issued a long-awaited certificate Feb. 9 that will enable Reico Investiční společnost, a daughter company of Česká spořitelna bank, to open the first Czech real estate fund for small investors.
Real estate fund at a glance
  • What is it? A mutual investment fund with a portfolio consisting of commercial real estate such as office spaces, logistics centers, retail centers, residential buildings and hotels
  • How does it make money? The yield depends on rents collected for the properties included in the fund's portfolio and also from their appreciation
  • Why did they take so long to get here? Although investors have been eligible to enter real estate funds since April 2006, banks — which are among the few companies wealthy enough to start investment funds — have not yet been allowed to gain stakes in real estate companies. A law that will change the situation should take force in May
Reico is set to start selling shares through Česká spořitelna’s outlets as early as March, and the company’s management anticipates high interest.
“Investing in real estate is safe, and the yield is above those expected of funds investing in bonds,” Reico General Director Tomáš Trčka said. “We believe it will attract a lot of retail investors.”
The portfolio will consist of commercial real estate such as office spaces, logistics centers and retail centers, as well as residential buildings and hotels. The fund’s yield will be determined by rents collected for those properties, and also by their appreciation.
Reico hopes to develop a portfolio that will guarantee annual yields of 4 percent to 7 percent, Trčka said. The fund will focus first on Czech real estate before setting its sights abroad.
Delayed law
Legal barriers preventing banks from launching real estate funds have delayed the launch of such a service for small investors in the Czech Republic.
At the outset, Reico’s fund will not be able to make investment in actual real estate; rather, it will invest in bonds. The reason is that the standing banking law does not allow banks and their daughter companies to gain stakes in real estate companies.
This could change in May if Parliament passes an amendment to the law, said Martin Hanzlík, general manager of the Association of Funds and Asset Management of the Czech Republic (AFAM).
A separate law only allowed small investors to enter real estate funds in April 2006.
The ČNB announced that it expects as many as five new real estate funds to open by the end of this year.
Among them could be ČSOB Investment Company, which opened a fund in 2006 focusing on acquiring shares of real estate developers. The company says it intends to open one for real estate after the banking law amendment takes force.
Komerční banka’s Investment Capital Company (IKS KB) plans its own version. Vice Chairman of the Board Pavel Hoffman told Hospodářské noviny Feb. 14 that 60 percent of the fund’s assets would be placed in the real estate sector.
Growing market
Given the low level of Czech interest rates, more people are choosing to invest in mutual funds rather than leave their money in bank accounts.
Last year, Czech mutual funds managed assets worth 271.3 billion Kč ($12.6 billion), an increase of 17.4 percent against the year before, AFAM announced Feb. 20.
Due to an outlook of better profit, investors are likely to move from funds with portfolios consisting mostly of money market products to funds that invest in more profitable sectors such as real estate, said David Urbánek, an analyst with Moneco.
Many investors are already heading that way. Cushman & Wakefield reported that investment in Czech commercial property reached more than 1.3 billion euros ($1.7 billion/36.8 billion Kč) last year — 45 percent growth against the year before.
The annual yields from Czech commercial real estate reach 5.5 percent to 7 percent. In the original 15 European Union member states, the yield is between 4 percent and 6 percent.
Foreign capital accounts for 95 percent of investment in commercial real estate in the Czech Republic, said John Chapman, head of Cushman & Wakefield’s investment department in Prague.

František Bouc can be reached at fbouc@praguepost.com


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