One of the large open-ended real estate funds, DWS's Grundbesitz Europa, has restricted redemptions. Investors who want to sell after the required one-year notice period will receive no more than 10% of their shares back, rather than all cancelled shares. The fund is worth more than €4 billion.
The restriction is significant because it damages the reputation of all real estate funds and could be a decisive blow to a product in which Germans still have more than €100 billion invested, according to the source. The wider industry is suffering from higher interest rates and rental problems in the office and commercial property market, which pressure the value of property portfolios and make bonds more attractive.
Investors have been withdrawing more money than they invest for several years, forcing funds to sell properties. Unlike shares, real estate cannot be sold daily, and certainly not at a decent price, so forced sales put additional pressure on fund values.
Grundbesitz Europa is not the first fund to face such difficulties. Several smaller funds have already suspended redemptions entirely or are being wound up. Until now, market leaders could argue that the problem was confined to smaller funds, but the latest restriction affects a fund worth more than €4 billion.
The source notes that over the past 20 years, real estate funds have run into trouble whenever the property market has come under pressure, and that protective mechanisms introduced in response have not helped. It concludes that real estate funds should be abolished, arguing that a product which faces existential trouble in every difficult market phase is not fit for purpose. At the very least, it says, advisers who earn well from selling the funds should be honest and stop presenting them as a safe investment.
Sources: FAZ.