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Real Estate Funds are Regulated Pursuant to ART. 58 – 67 CISA.

Permitted Investments

According to Article 59, Real estate funds under CISA may, in particular, invest in the following:

  • Real Estate;
  • Real Estate Companies;
  • Units In Real Estate Funds; and
  • Foreign Real Estate Assets

Further permissible investments are listed in Art. 86 para. 3 CISO and includes:

  • Interests in and receivables from real estate companies;
  • Co-ownership interests in real estate funds are then only permitted if the fund management or the SICAV can exercise a controlling influence (Art. 59 (2) CISA and Art. 88 CISO). This is particularly the case if the fund management company or the SICAV have a majority of the co-ownership shares and votes (Art. 88 para. 1 CISO);
  • Short term fixed interest securities; and
  • Short term funds.

These are considered in more detail below:

The relevant definition of the term “real estate” for the CISA can be found in Art. 86 (2) CISO. It covers investments may be made in:

  • Residential buildings (art. 86 par. 2 lit. a CISO);

  • Properties which exclusively or for the most part serve commercial purposes (Art. 86 para. 2 lit. b CISO);

  • Buildings with combined use within the meaning of Art. 86 para. 2 lit. c CISO, which serve both residential and commercial purposes;

  • Condominium properties (Art. 86 para. 2 lit. d CISO);

  • Construction land including demolition objects, buildings in progress (Art. 86 para. 2 lit. e CISO); and

  • Plots under building law (Art. 86 para. 2 lit. f CISO).

The development requirement is intended to ensure that construction work will begin within a short time after the building permit has been granted and hence is aimed at preventing illiquid properties from being taken over by the real estate fund.

FOREIGN REAL ESTATE

Foreign real estate assets may be acquired, provided they can be properly valued, (Art. 59 para. 1 lit. d CISA in conjunction with Art. 86 para. 3 lit. d CISO).

Risk Diversification

According to Art. 62 CISA Investments must be diversified by type of property, purpose of usage, age, building fabric and location. Subject to certain restrictions, real estate funds can also undertake derivatives transactions. The more specific provision are at Art. 87 CISO.

In this regard, investments built according to the same building principles and adjacent plots are considered to be a single plot.

Art. 87 CISO, paragraph 1 provides that real estate funds must spread their investments over at least ten plots of land.

There is a two year (Art. 62 CISA in conjunction with Art. 67 para. 4 CISO).

Also, there can be a maximum of 25% NAV in aggregate in units of other real estate funds and listed real estate companies. (Art. 59 para. 1 lit. c CISA in conjunction with Art. 86 para. 3 lit. c CISO).

Conflicts of Interest / Related Parties

Art. 63 (2) CISA prohibits the fund management, the custodian bank and their representatives and related parties from taking over the real estate values of the real estate fund. Art. 91a CISO regulates in detail who is considered a related party. Art. 63 para. 3 CISA stipulates that the SICAV may not acquire or assign any real estate assets from the shareholders of the company or, in particular, from its agents.

Verification of Ownership

Art. 86 para. 2bis CISO then contains the provision as to how real estate held by a fund management company or a SICAV is to be entered in the land register.

Valuation

There are specific rules on valuation (Art. 92 et seq. CISO), including that at least two natural persons or a legal entity may be appointed as valuation experts. These experts must also confirm the market conformity of the purchase and sale prices of the property value and the transaction costs.

Liquidity

Having regard to liquidity, there are several provisions unique to real estate funds:

  • If new fund units are issued, the fund management company and the SICAV are obliged to offer them in advance to existing investors (Art. 66 para. 1 CISA in conjunction with Art. 97 CISO). There is no such obligation with other forms of investment.
  • Investors may demand that their units be redeemed at the end of the financial year, giving twelve months’ notice (Art. 66 (2) CISA in conjunction with Art. 98 CISO).
  • The fund management company and the SICAV must ensure regular exchange or OTC trading for real estate fund shares via a bank or securities dealer (Art. 67 CISA).
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