Property funds collect funds from various private or institutional investors in order to acquire one or more properties or investment products. They are classified as an unlisted form of indirect property investment, and thus are in the spectrum of indirect property investment products, competing with property stocks and REITs in particular.
An indirect property investment means that the investor subscribes to shares in a company that, in turn, invests in properties. Through property funds, investors therefore have the opportunity to invest relatively small amounts in large-volume properties by way of professional fund companies. Compared to a direct property investment, property funds are usually characterised by broad diversification (usually various properties in different regions and types of use) and professional investment management, which entails a higher degree of fungibility and lower transaction costs. In return, in addition to the investment for the property itself, there are fund management fees, subscription fees, expenses for tax and legal advice, funds monitoring and so on.
There are basically two different types of property funds:
In Germany, both closed and open-ended property funds are subject to the legal provisions of the Kapitalanlagegesetzbuch (KAGB – Investment Code). Furthermore, the issuer of the fund (an asset management company) must have an “AIFM license” in order to legally issue property funds.3