Opportunities not (yet) exploited

Polish funds investing in real estate
Opportunities not (yet) exploited

Pension funds operating in Poland cannot invest money in real estate investment funds which is the main reason why the Poland has no such funds. According to market sources, other reasons include the specific philosophy of most Polish investors and distrust towards new financial products.

The beginning of the year saw Towarzystwo Funduszy Nieruchomości Skarbiec (Skarbiec Real Estate Fund Association) attempt to set up the first Polish fund investing in real estate products. The fund, called Skarbiec Nieruchomości, collected PLN 20 mln, which is PLN 10 mln less than required to make a profit.
Representatives of Skarbiec say that this was caused due to a general recession and the fact that subscriptions for Skarbiec Nieruchomości's investment certificates were issued at a bad time as investors had invested a lot at the end of 2001 trying to escape the newly introduced tax on bank savings interest.

Other unofficial reasons include:

• An incorrect selection of customers - Skarbiec Nieruchomości' targeted individual investors

• An unattractive investment programme - as much as c. 30 % of the funds resources were to have been spent on purchasing sites in Poland's larger cities, no more than 20 % on the construction of residential schemes (as profits from this sector are regarded as uncertain) and small high class office buildings, with no more than 30 % on securities (including shares of companies operating in the real estate market)

• An inefficient promotional campaign, showing unfamiliarity with real estate market rules.

Fuure of real estate funds
Did the pioneers' failure discourage others from establishing a real estate fund? President of TFI CA IB, Grzegorz Świetlik explains that his company has other objectives. ,We are focusing on new a product, a private equity fund, which will invest in shares of non-public companies. This is an altogether more attractive and easier project. It does not mean, however, that we are giving up on the idea of a real estate investment fund. We will probably try to established one next year, in co-operation with a property agent or developer who will be able to assist us in valuations amongst other things."
According to Grzegorz Świetlik close-end specialised investment funds should look amongst institutional investors when looking for clients. "We will start by analysing their expectations and capabilities. When we've signed letters of intent with four or five such investors, we can start a promotional campaign for individual customers."
Specialists agree that pension funds would be great investors in real estate funds. Their investment strategy complies with the philosophy of investing in property - securely and for many years. But a combination of interests is impossible. The current law prohibits pension funds in investing in specialised close-end funds.

Pension funds dreams
"From a pension funds point of view, investing money in real estate is an attractive option. We would certainly be glad to do it, particularly before Poland's accession into the EU and interest rates fall," says Jarosław Jamka, Investment Department director at ING Nationale Nederlanden Polska Powszechne Towarzystwo Emerytalne. "I think that pension funds operating in Poland would find such an opportunity interesting."
These dreams may soon be realised. The Polish government is looking at lifting some of the current limitations on pension fund activity.
Several amendments to legislation have been proposed, including   ending the current ban on investing in specialised close-end funds. Grzegorz Świetlik expects changes in the law, allowing pension funds to invest directly in real estate, to come into effect in January next year.

Traditional investors
If, however, the law is not amended, will funds investing in real estate establish themselves on the Polish market? It is difficult to answer this. According to Andrzej Chełchowski of law firm Miller Canfield and Grzegorz Świetlik of CA IB, Poland is still dominated by investors hoping for quick profits, prefering to invest in the familiar monetary markets. ,I believe that as soon as the economic situation improves, investors will become more optimistic and more willing to invest their money in real estate for periods of 10 years or more," Grzegorz Świetlik adds. In the meantime Polish real estate investment transactions are being concluded by foreign funds such as the German Deutsche Grundbesitz and Austrian CA Immo AG.