Have you invested in real estate funds and want to withdraw your money? It usually takes only a few days. However, there may be a situation where you wait 12 months for money and you can get less than you expect. When can the real estate fund suspend payment of shares?
When was the last time the real estate funds stopped paying people money?
This has never happened in Slovakia. You just have to look at the UK and there happened in 2016 and in 2017. Following the EU referendum, the mood has changed in the market and has affected the commercial real estate market so much that real estate funds have stopped paying their money back to their people.
If we went a little further into the past, a similar situation arose in 2008 and 2009 across real estate funds in Europe.
The problem with the real estate is when many people want to withdraw their money at the same time
People began to withdraw their money from real estate funds and they had no choice but to suspend the payment of shares. Why? The liquidity of real estate funds is limited and if there is no free money there is nothing to pay. When the payment is suspended, the fund has some time to sell some real estate or property. a company that owns the property and has acquired liquidity. Maximum is 12 months.
That is why the real estate funds hold quite a large part of the “cash” and invest money very conservatively almost without revenue. The price for this is the low return on real estate funds.
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What can be the problem when paying off? If real estate prices are expected to fail, they are difficult to sell and sell for long. If the fund wants to sell real estate quickly, maybe it will have to go below the price. This may have a negative impact on the unit price and is paid after the renewal of the disbursement according to the adjusted share price, which may be significantly lower than before the fund is closed.
There were no small funds in the UK. Closed funds that did not pay back their people’s money accounted for more than 60% of the UK’s real estate market. Compared to the Slovak real estate funds, it was a “giant” with assets worth almost € 15 billion. pounds Despite their size, they had problems.
Real estate funds vs. special real estate funds
Real estate funds is a generic name that people use to name mutual funds that invest in real estate-linked securities. In Slovakia, you have the opportunity to invest in foreign real estate funds that invest in real estate shares and you also invest in Slovak specialty real estate funds.
Equity Real Estate Funds
- What do they invest in – They invest in shares of companies that are linked to the real estate market.
- Fund Valuation – By investing in stock listed companies, the fund is always priced by the market. The price of the stock reflects the current price on the stock exchange and can not be different from the one for which the shares purchased are also sold.
- Liquidity – You can withdraw money from the fund at any time. It takes 5 to 10 business days for most merchants.
- Fund Volatility – As we talk about equity funds with real market valuation, it is very similar to classic equity funds.
- Revenues – These are similar to the returns of equity funds. It looks like this. 4 real estate funds in the last 7 years.
Special real estate funds
- What do they invest in – Special real estate funds invest in equity investments in real estate and securities that are closely linked to real estate markets (usually loans to real estate companies). They can also invest directly in real estate, but you find it very difficult to do it in their property. Slovak real estate funds do not use this option very much.
- Fund Valuation – The current cost is the market price. Most of the securities in these funds are not valued by the market. In special real estate funds, the Fund prizes its assets with the assistance of experts, accountants and auditors under the NBS Act no. 13/2011.
- Liquidity – If nothing really happens, you can withdraw money at any time and last for a few business days. However, if something serious happens and the fund does not have sufficient liquidity, it may take up to 12 months. This is true in the case of suspension of participation certificates.
- Fund Volatility – It is very low. Funds look very conservative. This is because these funds are not valued by the market and more or less booked.
- Revenues – Stable and below the long-term average of equity funds. This is largely due to the assets in which they invest, as well as higher ongoing charges.