The Real Estate Investment Fund Act (ImmoInvFG; Immobilien-Investmentfondsgesetz) regulates the management of real estate funds by real estate investment fund management companies. Only investment fund management companies for real estate are authorises to establish and manage such funds. Such special credit institutions only have a restricted banking licence pursuant to Article 1 para. 1 no. 13a of the Austrian Banking Act (BWG; Bankwesengesetz) and are supervised by the FMA.
Real estate investment fund management companies (KAGs) also hold licences under the Alternative Investment Fund Managers Act (AIFMG; Alternative Investmentfonds Manager Gesetz) as real estate funds or real estate special funds are considered as alternative investment funds (AIFs). The provisions of the AIFMG therefore also apply to real estate investment fund management companies.
What is a real estate fund?
Real estate funds primarily invest investors’ money in plots of land, building rights and real estate, for example office buildings, hotels, shopping centres as well as apartment buildings and rental apartments. The returns generated predominantly arise from rental income and appreciation in value when properties are sold on.
Real estate funds provide retail investors with the opportunity to invest in real estate, without having to purchase a property themselves (alone). It is not directly purchased, but via a fund. The unit-holders are therefore not listed in the land register (Grundbuch) and therefore do not have any collateral directly entered in the land register.
What are the risks associated with real estate funds?
Investment in real estate funds is not risk-free: changes in the quality of the location of the properties, in rental incomes, as well as the general interest rate environment all influence the fair market value of the real estate in the fund. The possibility of a total loss cannot be completely excluded.
Units in real estate funds are not exchange traded, but may only be purchased from and sold back to the KAG. Currently the possibility exists to redeem the unit certificates on a daily basis. However, in light of the fact that real estate is unable to be disposed of by sale immediately, the real estate investment fund management company is required to hold liquid assets of at least 10% (and a maximum of 49%) to be able to pay out units being redeemed.
A structural liquidity incongruence exists for real estate funds given the predominantly illiquid assets and the fact that units in the fund may be redeemed on a daily basis. To mitigate the associated risks, the legislator has passed new rules for real estate funds, that enter into force on 1 January 2027. These include:
- Minimum holding period: A 12 month minimum holding period is being introduced. This means that investors will only be able to submit a declaration to redeem the units they hold once they have held the units for twelve months.
- Notice period: In addition to the minimum holding period there is a twelve month notice period. This means that investors on receive the value of the units that they redeem one year after submitting a declaration to redeem the units. The real estate investment fund management companies are therefore able to plan the necessary liquidity within one year, and the hold it accordingly.
These measures are intended to reduce the pressure on the fund’s liquidity management and to ensure that real estate is not required to be sold under pressure for potentially lower prices. Doing so strengthens investor protection and increases the stability of the funds. The Financial Market Stability Board (FMSG) supports this amendment and recommends funds, to make use of transitional period.
What real estate funds are there?
The FMA publishes information on its website about all Austrian funds as well as foreign funds that are authorised for distribution in Austria: Search for AIFs & UCITS
All real estate funds that are authorised for distribution to retail clients, can be found under: Search for domestic AIFs – Funds Search (Fund type “ImmoInvFG”). The information about whether distribution is permitted to retail clients can be found on the right-hand side of the table.
What information must be provided?
Prior to the conclusion of a contract a simplified prospectus or a key information document, the full prospectus, the latest statement of accounts as well as the semi-annual report that follows them are to be made available to investors free of charge.
The fund regulations approved by the FMA setting out the investment principles must also be made available to the investor.
How are real estate funds supervised?
Real estate investment fund management companies must be licensed by the FMA, to be allowed to offer and manage real estate funds. The investment fund management company is therefore supervised by the FMA. In addition, every edition and amendment of the fund regulations of a real estate fund must be approved by the FMA.
Fund regulations are a standardised document defining the legal relationship of the unit-holders to the investment fund management company and to the custodian bank. The fund regulations must contain among other details information about the investment environment, the remuneration of the management company, conditions for issuance and redemption of investments, regulations about distributions.
The observance of the fund regulations is audited and confirmed in the respective statement of accounts by the compliance external auditor.
The FMA does not check and assess the provider’s investment strategy and whether the real estate fund is financially favourable for the investors. Risks of a potential loss are borne solely by the investors.
What does the suspension of a real estate fund mean?
The suspension of a fund for a real estate fund means that the fund’s daily trading in unit certificates is being temporarily ceased. They may be various reasons for doing so, such as liquidity problems, if too many investors want to redeem their units at the same time and the fund does not have sufficient liquid assets, to service these redemptions. This is defined in Article11 ImmoInvFG.
During a suspension investors are not able to buy or sell any units, which gives the fund management time to take the necessary steps for liquidity recovery.
Suspensions only occur under extraordinary prevailing circumstances. Such circumstances must make a suspension appear necessary, taking into account the unit-holders’ legitimate interests. It occurs following consideration by the respective KAG, for a maximum of two years.
What does the termination of a real estate fund mean?
The real estate fund’s underlying KAG has the possibility to terminate the management of the fund pursuant to Article 15 ImmoInvFG with a six month notice period, and to liquidate the fund thereafter. That may, for example, be the case that following the expiration of a two year suspension of a real estate fund that there is still not sufficient liquidity, in order to recommence the withdrawal of the units. During the liquidation process, the funds’ assets are disposed off, with the proceeds paid out to the unit-holders.
The assets contained in the real estate fund are to be converted into money as quick as is possible while safeguarding the interests of the unit-holders. The distribution of assets shall only take place once the real estate fund’s liabilities and the payments to the KAG and the custodian bank in accordance with the fund regulations have been satisfied.
Taking into consideration the paragraph above, advance payments may also be made for the distribution of assets that have already been converted into money.
What are “low-risk” or “gilt-edged” real estate funds (mündelsichere Immobilienfonds)?
Real estate funds that invest exclusively in properties, securities, and receivables, pursuant to Article 6 para. 7 ImmoInvFG that are considered “low-risk” or “gilt-edged” (“mündelsicher”) may themselves in turn be suitable for investment of funds held in trust for wards (Mündelgelder). The classification as “low-risk” or “gilt-edged” (“mündelsicher”) is made by the KAG for the respective fund, with compliance of the fund regulations being reviewed annually by an external auditor. Even categorisation as “mündelsicher” (low-risk or gilt-edged) does not mean that investment is completely risk-free and excluded from market-related volatilities.