Property law: Fun with real-estate funds

How to invest

There are no significant restrictions as regards the structure of shareholders in a real-estate fund. Investment certificates can be purchased by public subscription or in secondary trading on the Warsaw Stock Exchange.

When analyzing the profitability of funds, the first factor is demand for real estate. As demand increases, the price of real estate and the value of the certificates rise. Apart from this, high demand also has a positive impact on revenues from rents, which determine to a considerable extent the profitability of the investment. The current situation on the market means that investing in a real-estate fund should be highly profitable.

Quality, not quantity

The structure and quality of the fund's assets have an equally large influence on the increase in the value of a fund as other factors. An assessment of the 'quality of assets' should be understood as the types of real estate in which the fund invests and the attractiveness of the real estate for its potential users. This concerns the countries, regions or towns in which the fund invests. These factors have been typical to date - a greater rate of return has been obtained by investing in a large city or in attractive regions in terms of tourism and commerce. In all certainty, the safest solution is to invest in a fund that invests in a diverse range of real estate.

However, the main indicator taken into account by investors when assessing the effectiveness of a fund is the ratio of revenues from rent to the current market value of the real estate. For this reason, funds often invest only in completed real estate in which long-term lease agreements have been executed. The purchase of such real estate is preceded by a due-diligence process, comprising both a legal analysis of the agreements executed with tenants and the technical condition of the building or analysis of the land.

A long-term perspective

Real-estate funds are exploiting the new investment opportunities offered by the market. Their popularity should grow in time, as the experience of highly-developed countries indicates. They should primarily perform well as an element of risk diversification for an entire investment portfolio. In Poland, a huge increase in real-estate prices can currently be observed, which supports the profitability of investing in funds of this type. Of course, it must be borne in mind that the market will be saturated in a few years.

Ewelina Laskowska is an associate with Linklaters law firm, e-mail: ewelina.laskowska@linklaters.com