Open-End Real Estate Funds Should Have Extended Deadline

The watchdog announced on 7 November (last Friday) that the investment units of both open-end and closed-end real estate funds may not be subscribed or redeemed for 10 days. The measure was pro-active and was not triggered by the insolvency of the funds, the officers said.

Why the suspension?

A great amount of investment units were redeemed in October and November in Hungary, and at an increased pace. This was the direct cause of the suspension, not the lack of liquidity, officials of PSZÁF and BAMOSZ stressed, adding that this was a “proactive step".

István Farkas, head of PSZÁF said it is unlikely that funds will face liquidity problems at all, but noted that the liquidation period should be extended. There is no way to tell how the affected funds would look like a few months from now.

Before subscription and redemption of investment units may be restarted at the funds they will need to modify their general terms and conditions and must comply with unified conditions on information provision. The funds that comply with these may restart the trade of the units even before the end of the 10-day suspension period.

While all the necessary information are already included among the terms and conditions, the two bodies still propose to extend the period during which properties may be sold and clients paid to 90 days. This way the funds that find it hard to sell properties will not necessarily have to require extending the payment deadline.

The Hungarian banking unit of Austria's Erste Bank has announced on Monday that it will extend loans to those clients of its real estate funds, who want to withdraw their capital.

Erste noted that the suspension of trading in its real estate fund notes was "unjustified and unnecessary".

The wave of capital withdrawals in the past weeks was a consequence of high interest rates offered by banks that prompted investors to re-channel their savings into bank deposits, where are also deemed safer amid the global financial crisis.

“Erste continues to trust that its real estate funds will perform well," the bank said in a statement.

Erste Real Estate Fund, which has been present on the Hungarian market since 2004, claims its net asset value exceeded HUF 116 bn as of 31 October, which makes it the biggest in the country. The average yield of the fund is 8.41% (since its launch).

Hungarians held about HUF 550 bn in real estate funds at the end of September according to BAMOSZ's figures."

Source: Portfolio Online FInancial Journal