09 June 2004 03:59
New Funds Vie for Investors` Trust
Burgeoning property magnates take note: Since the appearance of the first real estate investment funds in Russia last
year, buying property is no longer the only way to invest in the real estate market.
Real estate investment funds first emerged in the West more than 40 years ago to attract smaller investors to the
real estate market. With average annual rates of return ranging from 7 percent to 15 percent, they make it possible to
purchase shares in a real estate project, instead of an individual bankrolling the project in its entirety.
Many private investors opt for real estate investment funds instead of buying real estate in order to diversify their
investments and avoid the need to manage the property.
And since Moscow has the highest real estate returns of any city in Europe, according to this year's joint
survey by the Washington-based Urban Land Institute and PricewaterhouseCoopers, increasing attention is being paid to
the new Russian investment funds that cover both Moscow and the regions.
However, the instruments are more risky in Russia than similar funds in the West because of the lack of a track
record. The funds are also not much more liquid than real estate itself, since the average investor still mistrusts them
because of their novelty, and most funds are not yet traded on the Moscow Interbank Currency Exchange, or MICEX.
Gerald Gaige, partner at Ernst & Young, said that when assessing the risk of a real estate investment fund, the
past performance of the fund, its management and an exit strategy that will return at least the invested amount should
all be taken into account.
Concordia Asset Management's fund, called Pervy Investitsionny Fond Nedvizhimosti, was set up in March last
year. One of the few real estate funds with more than a year's history, it invests in residential property in
Moscow and the Moscow region and has an estimated annual yield of 32.5 percent.
Concordia's analyst Viktor Malevankin said that the company's fund is the only one to date that is trading
on the MICEX, currently at 1.3 million rubles ($45,000) per share. But this high price is a deterrent for many
individual investors.
A less expensive real estate fund, called Maxwell Nedvizhimost, is managed by Maxwell Asset Management and is priced
at 300,000 rubles per share. Like the majority of Russian real estate funds, with the exception of Concordia, Maxwell
Nedvizhimost is a closed fund. This means that its investors can only buy shares at the time of their issuance.
Since the fund was only established this year, Maxwell Asset Management's general director Pyotr Lanin could not
comment on its rate of return, whether its earnings would be released as dividends or reinvested, nor on the type of
properties in which it would invest.
Many recently created real estate funds are still uncertain about their investment properties, which means their
volatility is especially high.
"If investing in a fund that is still choosing its properties, it is particularly difficult to estimate the
future performance, and how risky the choices of properties might end up being," Ernst & Young's Gaige
cautioned.
Investing in properties under construction also poses risks.
"We purposefully invest funds into already existing properties," said Vladimir Svinin, general director of
Svinin and Partners, which manages the First Petersburg Real Estate Direct Investment Fund.
Svinin and Partners' fund is the only one in Russia that owns its investment properties -- commercial space in
St. Petersburg -- and receives a revenue stream from its lease. It uses invested funds to renovate and improve the
properties and may expand beyond St. Petersburg in the future. A single share in the fund costs 157,307 rubles ($5,400),
and the company hopes shortly to begin trading the shares on the MICEX.
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[The Moscow Times] |
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