Act on Real Estate Investment Funds and Investment Funds Act updated
The Government will be proposing amendments to the Act on Real Estate Investment Funds and the Investment Funds Act that are intended to promote joint investment in real estate. The Investment Funds Act would be supplemented with provisions concerning special investment funds that primarily invest their assets in real estate and real estate securities. The Government agreed on the contents of the draft bills on 17 August, 2006 and the intention is for the President of the Republic to present the draft bills to Parliament on 18 August, 2006.
The present Act on Real Estate Investment Funds, passed in 1997, would still apply to public limited companies engaged in joint investment in real estate, but it would be supplemented with provisions concerning limited partnerships whose shares that are offered for sale to the public constitute securities referred to in the Securities Markets Act. The right of investment fund companies to invest assets of the investment funds they administer in the same limited company would be increased from five to ten per cent of the shares of the limited company in question. If the investment funds administered by an investment fund company hold more than five per cent of a limited company’s voting rights, the investment fund company would have to make public the objectives of the ownership policy in the limited company in question to the extent that they differ from the ownership-policy objectives shown in the fund prospectus.
Based on the experience gained in the application of the act and as a consequence of other legislative changes, it is proposed that certain amendments of a mainly technical nature be incorporated in the Act on Real Estate Investment Funds and in the Investment Funds Act. It is proposed that petitions concerning confirmation of statutes of real estate investment funds, exemption permission and other petition matters be transferred to the Financial Supervision Authority.
More investment options
The bill aims to increase investment options. The owners of limited partnerships and investment funds will be taxed once at shareholder level, making the two particularly suitable to the largest Finnish institutional investors. Indirect and unlisted investment is possible if direct ownership is not appropriate because of the size of the real estate or the special expertise required for its administration. In addition, indebtedness limits apply to investment by certain institutional investors.
An efficient privately-funded market for rental accommodation would direct capital increasingly towards the real estate market, which would reduce government-subsidized production. Real estate investment funds will only invest in rental housing, if there is demand for rental accommodation, a dispersed investment portfolio and a large number of properties in different towns and cities. The real estate market has a major effect on the Finnish economy in terms of employment.
Improving the real estate investment fund legislation was considered by a working group that submitted its interim report in December 2004. Its final report will be published on 18 August, 2006 and it can be read on the Internet (in Finnish) at www.vm.fi/julkaisut (Valtiovarainministeriön työryhmämuistioita 10/2006).
The draft decrees connected with the proposals referred to in the Government’s draft bill will be submitted for comment on the same day.
The Working Group on Real Estate Investment Funds had Ilkka Harju (chairman), Jukka Vanhanen, and Tomi Viitala as members.
Further information is available from Ilkka Harju tel. + 358 9 160 33082.