REVIEW OF THE REGULATORY ISSUES

RELATING TO REAL ESTATE FUNDS

REPORT OF THE TECHNICAL COMMITTEE

OF THE
INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS

JUNE 2008
 Review of the Regulatory Issues Relating to Real Estate Funds

Contents Page

Introduction ............................................................................................................. 2

Overview ..................................................................................................... 2

Valuation ..................................................................................................... 3

Liquidity of real estate fund shares / units .................................................. 3

Conflicts of interest ..................................................................................... 3

Title / legal ownership structure with respect to the

real estate property ...................................................................................... 4

Problems ...................................................................................................... 4

Summary of Responses to the Questionnaire .......................................................... 5

Introduction

In October/November 2007, a questionnaire about real estate funds was circulated

among the members of the IOSCO Technical Committee Standing Committee on
Investment Management (SC5). The intention of the questionnaire was to compare the
regulation of real estate funds in the different jurisdictions and, if possible, to identify
common themes and problems to be able to decide whether this subject needs further
attention of SC5 in the near future.

SC5 determined that the real estate fund subject was a very important one to be kept
under close watch. In this regard and in consideration of its immediate priorities, SC5
therefore decided to consider whether to undertake further work in this field in the
medium-term. For the time being, SC5 believes that the summary of SC5 members’
responses to the questionnaire provides useful information.

The scope of this questionnaire on real estate does not embrace all types of real estate
investment vehicles. It is limited to collective investment schemes (CISs) that directly
invest in real property (such that the CIS holds direct ownership interests in
buildings). It covers the main issues relevant to such funds, whether listed or non-
listed, in the case of both open ended and closed ended funds.

The main findings are summarized below:

Overview

• Most SC5 members regulate real estate funds. Only China and the US CFTC
reported not to regulate real estate funds, which is why neither China nor the US
CFTC appears in the summary of the responses to the questionnaire. In addition,
the US SEC generally does not regulate CIS issuers that invest directly in real
property. The different regulatory cultures become clear when comparing the
answers: some jurisdictions rely on transparency and broad principles, whereas
others provide for precise rules and limits. Some jurisdictions are in the process of
changing their regulation or have just finalized that process.

• Most jurisdictions make no principal difference between real estate funds and
“normal” CIS so that they are basically treated the same, even if in most cases
additional rules apply to real estate funds.

• The range of regulatory cultures is reflected in the different portfolio

diversification requirements. Where some jurisdictions allow a single property as
the only asset in the portfolio, others ask for a minimum of five properties.

• Regarding permitted borrowing, the answers vary from not regulated to different
maximum percentages of the net asset value (NAV).

• All jurisdictions require real estate funds to disclose their features in a prospectus
and report about the past financial period at least once a year. A few jurisdictions
rely on the general disclosure principles that apply to all CIS including those
investing in real estate. Most jurisdictions however address specific elements of

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 real estate investments that should be disclosed in detail in the prospectus and/or
annual report.

• In most jurisdictions a certain level of experience in the real estate industry –in
addition to general management skills and financial knowledge- is required for
the real estate fund management.

Valuation

• Most jurisdictions require a valuation by independent valuation experts at least

once a year. However, estimations by the management are generally authorized in
between the independent valuations.
• One of the assumptions was that valuation could be a problem area. The
responses indicated that most jurisdictions recognize the potential difficulties in
establishing a fair price.

Liquidity of real estate fund shares / units

• Different regulation exists for the registration of real estate funds. Sometimes
only closed ended funds are allowed, while other jurisdictions only accept open
ended funds. A number of jurisdictions allow both.

• Different regulation also exists with regard to guaranteeing a certain minimum of

liquidity, lock in periods and postponing of redemptions. The most common
regulation to guarantee sufficient liquidity requires an obligated minimum
percentage of liquid assets in the portfolio, fixed moments of redemptions and
subscription and a minimum period of notice for investors.

• Whether by rule or common practice, the calculation of the NAV is largely the
same everywhere.

Conflicts of interest

• In most jurisdictions management companies have to observe some sort of

corporate governance codes, sometimes established by law and in some cases by
self-regulation by the local fund industry.

• In many cases, the management company is allowed to sell its own property to
the fund, but most jurisdictions recognise the conflicting interests here and have
set specific rules for such cases.

• In cases where independent oversight for managing possible conflicts of interest

is required, this results usually from the broader regulatory structure for CIS and
not from the special nature of real estate funds.

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Title / legal ownership structure with respect to the real estate property

• In most cases the assets are held and registered in the name of the fund. In the
jurisdictions where that is not the case, safeguards like the obligation to have the
consent of the trustee before the property can be disposed of are in place.

• In many jurisdictions a real estate fund is allowed to indirectly invest in property

through corporate vehicles or other real estate funds.

Problems

• No serious issues are reported. Some jurisdictions point to valuation issues or

conflicts of interests as possible problems, but most SC5 members did not
experience actual problems in their own jurisdiction.

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 Summary of Responses to the Questionnaire

Overview

1. Are investment funds which directly invest in real estate (“real estate funds”) permitted in your
jurisdiction? If yes, what is their legal constitution?

Member/
Jurisdiction
Australia There is no regulation specific to real estate funds in Australia. Funds that invest in real estate
are subject to the general regulation applicable to "managed investment schemes".
Brazil Yes, real estate funds are permitted in Brazil according to Federal Law number 8.668 of 25 June
1993. They follow a contractual model and must be closed-ended.
France French real estate funds are permitted under French law. They may be structured as open ended
or closed end collective investment schemes (“CIS”).

Open ended CIS (“OPCI”) are either contractual funds (“FPI”) or investment companies with
variable capital (“SPPICAV”).

Closed end CIS are real estate investment companies (“SCPI”). The new regime pertaining to
Real Estate Funds as described hereunder provides for open ended CIS (hereinafter “Open ended
real estate funds” or “OEREFs”).

OEREFs have been introduced into French law very recently. Indeed, the implementing
measures of the Law creating OEREFs have entered into force in May 2007. French OEREFs
may be established as retail funds or qualifying investor funds (i.e., subject to investor criteria
requirements).
Germany Yes. Open-ended real estate investment funds are permitted according to the German Investment
Act. While they are not legal entities in their own right real estate investment funds in Germany
are “pools of special assets” (Sondervermoegen). Their assets are merely legally owned and
administered by management companies on behalf of the investors. The special assets are to be
kept separate from original property belonging to the management company at all times.
Hong Kong In Hong Kong, investment funds offered to the public are generally required to obtain
authorisation from the Securities and Futures Commission (the “SFC”). As far as SFC-
authorised funds are concerned, direct investments in real estate are permitted if the funds
concerned are real estate investment trusts (“REITs”) governed under the Code on Real Estate
Investment Trusts (the “REIT Code”) issued by the SFC.

Under the REIT Code, a REIT is a collective investment scheme constituted as a trust that
invests primarily in real estate with an aim to provide returns to holders derived from the rental
income of the real estate. REITs in Hong Kong are constituted as closed-ended funds and have
to be listed on Hong Kong Stock Exchange (“SEHK”).

Except for REITs, SFC-authorised funds are generally prohibited from directly investing in any
type of real estate. However, these funds are permitted to invest in shares of real estate
companies or interests in REITs that are listed on a stock exchange. Accordingly, the answers to
this questionnaire only cover REITs in Hong Kong and their current regulations.
Ireland Investment funds established in Ireland require authorisation from the Irish Financial Services
Regulatory Authority (the “Financial Regulator”). Authorised investment funds are permitted to
establish as property/real estate funds.

Investment funds, which invest in real estate, can take the following legal forms:
Unit Trusts;
Investment Companies;
Investment Limited Partnerships; and
Common Contractual Funds.

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 Irish investment funds may be established as retail funds, professional investor funds (minimum
subscription requirement) or qualifying investor funds (minimum subscription and investor
criteria requirements). While many of the real estate funds which have been established in
Ireland, are investment funds that are restricted to professional or qualifying investors, retail real
estate funds may also be established.
Italy Yes, funds which invest in real estate are permitted in the Italian jurisdiction.
In particular, real estate funds are funds that invest at least two thirds (66%) of their assets in
real property, encompassing both ownership and other types of real interests (“estates”) in
immovable goods (lands, buildings etc.), and/or in shares of real estate companies. This limit is
reduced from 66% to 51% when at least 20% of the fund’s total assets is invested in asset
backed securities (ABS) resulting from the securitization of real property or either home equity
loans and mortgages.
Real estate funds must be closed-end funds, that is, funds whose shares can be redeemed only at
some predetermined dates. These funds can be available for purchase (especially when they are
listed on stock exchanges) or subscription by retail investors - in this case their public
offering/listing must be necessarily preceded by the publication of a prospectus – or can be
reserved to professional investors.
Japan Yes. Although there is no legal definition of “Real Estate Fund” in Japan, in general, the
collective investment schemes (“CIS”) that can directly invest in real estate are as follows:
Contractual and corporate type of investment trusts; Special purpose companies and special
purpose trusts; Real estate syndication contracts; and Partnership contracts based on the Civil or
Commercial Law.

All real estate funds listed on exchanges, so-called “J-REITs”, are investment securities of
investment corporations based on the Investment Trusts Law.
In addition, among the above mentioned schemes investment by the fund is not merely limited
to real estate except for real estate syndication contracts.
Jersey Yes, Companies, unit trusts or limited partnerships
Luxembourg Yes, investment funds which directly invest in real estate (“real estate funds”) are permitted.
Real estate funds may be set up under the contractual type and under the company type.
Mexico Yes
Netherlands Yes, investment funds which directly invest in real estate are permitted. There is no special
regulation for them and they are treated as any other CIS.
Ontario Conventional open end redeemable investment funds are not permitted to invest in real estate
(with one exception, as discussed below). The most common retail real estate investment
vehicles are Canadian Real Estate Investment Trusts (REITs), which are not considered
investment funds (i.e. they are not collective investment schemes). REITs are not discussed in
this response.

In the regulatory framework, closed end non-redeemable funds, which can be both trusts or
corporations, can invest in real estate directly. However, the Ontario Regulator is not aware of
such funds’ existence.
Portugal Yes. The jurisdiction recognizes and regulates investment funds which directly invest in real
estate. According to the Portuguese law they must be constituted under a contractual structure,
but a project of decree-law to implement the corporate structure for real estate investment
undertakings has recently been launched for public consultation
([Link]
F819D19FA305/9278/[Link]). According to the Portuguese legal framework the types
allowed are real estate investment funds, special real estate funds, funds of funds and guaranteed
funds. All may be open-ended, closed-ended or balanced funds.
Quebec Conventional open end redeemable investment funds are not permitted to invest in real estate
(with one exception, as discussed below). The most common retail real estate investment
vehicles are Canadian Real Estate Investment Trusts (REITs), which are not considered
investment funds (i.e. they are not collective investment schemes). REITs are not discussed in
this response.

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 In the regulatory framework, closed end non-redeemable funds, which can be both trusts or
corporations, can invest in real estate directly.
Spain Yes, they are permitted. They can have a contractual or a corporate form. They are registered as
non financial Collective Investment Schemes (CIS)

The real estate funds with corporate form are companies with limited liability. The have fixed
capital and therefore they are closed end funds. The shareholders can contribute with properties
to the setting up of the company or to increase capital.

The real estate funds with contractual form are open end funds. The initial investment and the
following investments can be made in properties. However, the fund rules can limit the
contributions in kind.
Switzerland Yes. Swiss real estate funds may be structured as open-ended or closed-ended collective
investment schemes (CIS). Open-ended CIS are either contractual investment funds or
investment companies with variable capital (SICAV). Closed-ended CIS are either limited
partnerships for collective investments (LLP) or investment companies with fixed capital
(SICAF).

The SICAV and the two forms of closed-ended CIS (LLP and SICAF) were only introduced
into the new Swiss legislation on CIS (Federal Act on Collective Investment Schemes,
CISA) entering into force on 1 January 2007. While LLPs are restricted to the so-called
qualified investors, the CISA is not applicable to SICAFs, provided that they are listed on a
Swiss stock exchange, or provided that (l) the shareholders are qualified investors, (ll) the
shares are registered and (lll) these requirements are audited and reported to the supervisory
authority annually by recognized auditors.
UK Yes, these are available in both open-ended and closed-ended form:

Open-ended
a) funds authorised by the FSA. These would generally be "non-UCITS retail schemes" (NURs),
which have wider investment powers than UCITS funds but can still be marketed to the public.
They come in two forms: unit trusts or a corporate structure (known as OEICs or ICVCs).

b) funds not authorised by the FSA. These cannot be marketed to the public and are not
addressed further in this response.

Closed-ended
"Real estate investment trusts" (REITs) are a listed corporate structure (despite the name).
US SEC Yes. Real estate funds are permitted in the United States. Under the laws, however, an entity that
invests solely and directly in real estate or is primarily in the business of investing directly in
real estate would not be deemed to be a CIS. This is because the laws define a CIS as an issuer
that is engaged in investing in securities, and the direct ownership interests in real estate would
generally not be deemed to be securities.

Instead, there are certain other entities commonly referred to as real estate investment trusts
(“REITs”) that take investor money to purchase, and directly hold and manage, real property.
REITs that offer their shares to the public are generally subject to the same securities registration
requirements as other public industrial (as opposed to investment) companies. Many of the
REITs that register their public offerings of securities with the SEC are listed on a national
securities exchange, and as such, are also subject to the listing standards of their respective
exchange.

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2. Please provide an estimate of the number of real estate funds and their assets under management by
completing this table:

Member/ total total assets as at listed funds non listed closed end open end
Jurisdiction number under [date] funds funds funds
of management
funds
Australia 768 $124 bln 31dec07 64 704 n/a n/a
(listed only)
Brazil 70 US$1.8 bln 31oct07 24 46 70 0
France 160 € 15.3 bln 15nov07 n/a 160 150 10
Germany 162 € 108 bln 29feb08 n/a n/a n/a 162
Hong Kong 7 US$ 8.6 bln 30sept07 7 0 7 0
Ireland n/a n/a n/a n/a n/a n/a
Italy 134 22 106 134 0
Japan - - 31mar07 41 ($57bln) - ($240bln) - ($298bln) 0
Jersey 172 £ 30.7 bln 30sept07 n/a n/a n/a n/a
Luxembourg 92 € 13.0 bln 30sept07 n/a n/a n/a n/a
Mexico n/a n/a n/a n/a n/a n/a
Netherlands n/a n/a n/a n/a n/a n/a
Ontario 1 $ 2.4 bln n/a n/a n/a 1
Portugal 197 € 9.5 bln 30okt07 2 195 181(€5.6bln) 16 (€4.5bln)
Quebec 0
Spain 18 € 9.4 bln 30sept07 - 18 9 (€0.5bln) 9 (€8.9bln)
Switzerland 30 CHF 12.6 bln 31dec07 14 16 - 30
UK - 17 17 37 (£45.6bln)
US SEC ~ 1000 n/a 31dec06 183($438bln) ~ 800 0 0

3. Are real estate funds regulated in the same way as other CIS, or are there special rules for their
regulation? Please state the regulations applicable to real estate funds in your jurisdiction.

Member/
Jurisdiction
Australia Real estate funds are regulated in the same way as other investment funds
Brazil Real Estate Funds have specific rules; in principle, they do not follow therefore the same rules
applicable to other CIS. However, Instruction CVM number 409, of 18 August 2004, applied for
CIS, is used subsidiary in any situation not foreseen by the real estate funds rules.
Besides Federal Law number 8.668 of 25 June 1993, real estate funds in Brazil must comply
with the rules stipulated by Instruction CVM number 205 and 206 of 14 January 1994.
In a near future CVM will bring up for public hearings a project of a new Instruction regulating
the constitution, the management, the public offerings of quotas, the operation, and the
disclosure of information of the real estate funds.
France As a general rule, Real Estate Funds are regulated in the same way as other collective
investment schemes. However, given the particular nature of Real Estate Funds’ investments,
specific rules are provided for by law and regulation.

Please note that the following answers only relate to Retail OEREFs.
Germany Open-ended real estate investment funds are generally governed by the same regulations
applicable to all other open-ended investment funds.
Hong Kong In Hong Kong, REITs are governed separately by the REIT Code.
Ireland Real estate funds are regulated in the same way as other collective investment schemes but some
additional rules apply.
Italy In Italy real estate funds must be closed-end funds, that is, funds that are set up under the
contractual legal form, whose shares can be redeemed only at some predetermined dates. Thus,
real estate funds comply, as a reference point, with all the legal requirements which hold for

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 closed-end funds.
In addition, and sometimes in partial exemption from these obligations, real estate funds are
addressed specific sets of rules within the different pieces of legislation that regulate collective
investment schemes.
Japan A structure of real estate funds for both types of investment trust and investment corporation is
regulated by the Investment Trust Law. A structure of real estate funds for both types of special
purpose company and special purpose trust is regulated by the SPC Law.
Jersey The rules are determined by type of investor for expert/sophisticated investors there are no
additional rules above those for other types of fund. However, for retail investors there are
additional Rules/guidance.
Luxembourg The general provisions of part II of the law concerning undertakings for collective investment
(UCIs) apply, with some additional rules for real estate assets.
Luxembourg real estate funds can also be set up under the law relating to specialised investment
funds (SIF) which reserve their securities to one or several institutional or well-informed
investors.
Mexico Real state funds are only foreseen in the regulatory framework (Investment Companies Act) but
no secondary regulation has been issued for these funds.
However, Income Tax Law provides special rules for trusts that invest on real estate in order to
be granted fiscal transparency.
Netherlands Real estate funds are regulated in the same way as other investment funds
Ontario There is a prohibition on direct investment in real estate by open end redeemable investment
funds subject to the mutual fund investment restrictions rule.
For other types of investment funds, there are no specific rules prohibiting direct investment in
real estate, but there is no activity in this area.
Portugal Real estate investment funds are not regulated in the same way as other CIS. Specific regulation
is provided for real estate investment funds, which are regulated in an autonomous way by
Decree-Law 60/2002 ([Link]
8A4B98726A65/9229/[Link] ), which is
now under review in order to allow real estate investment undertakings to be constituted under
corporate form.
Quebec There is a prohibition on direct investment in real estate by open end redeemable investment
funds subject to the mutual fund investment restrictions rule.
For other types of investment funds, there are no specific rules prohibiting direct investment in
real estate, but there is no activity in this area.
Spain Real estate funds are regulated as a specific type of CIS under the general regulation of CIS.
They have special rules.
Switzerland As a general rule real estate funds are regulated the same way as other CIS. However, given the
specific investment issue, real estate funds are ruled within the separate section of the regulation.
Please note: The following answers only relate to open-ended real estate funds.
UK NURS are not formally categorised into different types of fund (eg property fund, equity fund,
etc), so the framework of regulation is the same, although some additional provisions apply to
funds substantially invested in real estate ("immovables").

From April 2008 NURs will be able to take advantage of a beneficial tax regime if they can
meet certain additional criteria (explained below). A NURS that meets these criteria will be
referred to as a PAIF (Property Authorised Investment Fund).

REITs are subject to the Prospectus Directive and the UK Listing Rules when listed.
US SEC See response to Question 1 – real estate funds are not regulated as CIS.

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Please provide information on the regulation of real estate funds relating to:

(a) Permitted investments, including an indication of the extent to which real estate funds can invest in
(i) non-real estate assets and (ii) other financial assets (e.g., securities of property companies, interests in
other real estate funds, property derivatives etc.)

Member/
Jurisdiction
Australia There is no limitation in relation to permitted investments. Non real estate funds can invest in non-
real estate assets and in other financial assets. However, depending on the proportions of the
various types of assets, the fund manager may need to consider whether it is appropriate to
describe a fund as a real estate fund.
Brazil According to Instruction CVM 205, real estate funds in Brazil must invest their assets exclusively
in real estate property, assets and rights of use of real estate ventures.

The Instruction allows that up to a quarter of the net assets of the funds be invested in government
bonds or other fixed income securities, as well as in fixed income investment funds’ quotas.

In the proposed rules that will soon be submitted to public hearings, there’s a provision that other
types of assets be allowed, such as, Securities issued by public companies whose activities are
related to the real estate funds’ investments, Quotas of “Fundos de Investimento em
Participações” (Private Equity Funds regulated by CVM, which investment target in real estate
companies), Quotas of other real estate funds, MBS
France OEREFs must hold at least 60% of their value in property assets and 10% in liquid assets.
OEREFs are not allowed to invest in non-real estate assets other than financial instruments. Other
real estate funds are eligible up to 5% of the fund’s value.
The use of derivatives is permitted, provided that the transactions in derivatives comply with the
fund’s investment policy and that the commitment does not exceed 100% of the fund’s net assets.
Germany Open-ended real estate investment funds in Germany have to invest at least 51 % of the net asset
value in directly held real estate property. Up to 49 % of the net asset value of a real estate
investment fund can be invested indirectly in real estate property by means of shares held in real
estate companies or in assets of high liquidity such as cash accounts, money market instruments,
units in certain other investment funds, certain securities approved by EUROSYSTEM or – to a
maximum of 5 % – other listed securities, bonds bearing fixed interest and shares in German or
comparable foreign REITs. Indirect investments in real estate property through real estate
companies in which the investment management company holds 100 % of the shares (voting
rights and capital) on behalf of the fund are for the purpose of the above mentioned restriction
considered direct investments.
Hong Kong Under the REIT Code, REITs shall only invest in real estate which shall generally be income-
generating. The real estate properties may be located anywhere. A REIT may acquire
uncompleted units in a building which is unoccupied and non-income producing or in the course
of substantial development, redevelopment or refurbishment, but the aggregate contract value of
such real estate shall not exceed 10% of the total net asset value of the REIT at the time of
acquisition. REITs are prohibited from investing in vacant land or engaging or participating in
property development activities. Subject to the foregoing, REITs are allowed to include as the
“Authorised Investments” under their trust deeds the following - cash and cash equivalent items
(such as money market instruments of investment grade and other investments of such high
liquidity and safety that are as good as cash) and investments in relation to arrangements for the
purposes of enhancing the return on or reducing risks associated with the REIT’s investments
(such as derivative instruments for hedging purposes).
Ireland Notice NU 18 imposes the following for real estate funds:
Real Estate funds invest in property and property related assets defined as follows -
Property – ‘freehold or leasehold interest in any land or building’.
Property related assets – ‘includes other collective investment undertaking, property derivatives
and securities issued by a body corporate (e.g., shares, debentures, warrants or certificates
representing these) whose main activity is investing in, dealing in, developing or redeveloping
property.

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 Other types of assets may be considered in the case of professional and qualifying investor funds.’
There is no restriction on the amount of cash or short-term securities, which can be held by the
real estate fund when the purpose of such holdings is to meet redemption requirements or where
this is otherwise reasonably necessary.
Italy Real estate funds must compulsorily invest a minimum share (66% or 51%) of their portfolios in
real property or in equity of real estate companies. As regards the remaining part of their
portfolios, real estate funds can invest in other types of assets, such as of non real estate credits
(loans) and securities (bonds and equities), bank deposits and shares of sub-funds (including
hedge funds), either listed or not. In any case, real estate funds are not allowed to engage directly
in construction operations.
Japan Investment trusts and investment corporations are required to invest their assets in specified asset,
namely securities, rights on derivatives, real estate, CP, interest on secret partnerships and so on.
Special purpose companies and special purpose trusts are prohibited to invest their assets in
partnership interests or equities on trusts contributed by way of money.
Real estate syndication can only invest in only real estates.
There are no regulations for partnership type CISs regarding permitted investments.
Jersey Recognized Property Fund may invest in (a) approved immovables (up to 80%), (b) property
related assets (up to 80%), (c) government and other public securities (up to 35%) and (d) units in
collective investment funds (5%). Initially only 15% of pool in one immovable (may rise to 25%),
5% property related assets of one issuer (may rise to 10%)
OCIF Property Fund may invest in (a) Freehold real property; (b) Leasehold real property which
has an unexpired term of 20 years or more; c) Transferable securities issued by a company, the
principal object of which is to invest in, deal in, develop, redevelop or refurbish property, whether
directly or indirectly, d) Units in a collective investment scheme which would qualify as a Real
Property Fund under the provisions of this schedule; e) Government and other public securities; A
OCIF may also hold cash or near cash.
Luxembourg By real estate assets the circular IML 91/75 means:
- Property consisting of land and/or buildings registered in the name of the UCI.
- Share holdings in real estate companies (including claims on such companies) the exclusive
object and purpose of which is the acquisition, promotion and sale as well as the letting and
agricultural lease of property provided that these share holdings must be at least as liquid as the
property rights held directly by the UCI.
- Property related long-term interests such as surface ownership, lease-hold and options on real
estate assets.
Mexico No specific secondary regulation has been issued.
Netherlands There is no regulation in relation to permitted investments. Any type of fund, including a real
estate fund, may invest in non-real estate assets.
Ontario Generally, 20% of the fund is invested in liquid assets to provide for liquidity.
Portugal Only real estate property and liquidity are eligible for investment by real estate funds. The real
estate property shall correspond to urban buildings or independent units of the same building.
Nevertheless, CMVM defines by regulation other eligible assets for the so called “special real
estate investment funds”, namely rural or mixed buildings, investment units in real estate funds
and other equivalent assets. The real estate investment funds’ assets may comprise real estate
property under right of ownership, superficially, or by means of other rights with similar content.

The real estate fund may invest in liquidity, under the form of bank deposits, deposit certificates,
investment units from money-market funds and securities issued or guaranteed by a Member State
of the European Community with a long-term book value of less than 12 months.

The real estate investment fund may invest 25% of the total assets of the funds in investment units
in other real estate funds. Investment units in real estate companies are – under certain conditions-
also eligible for investment by real estate funds.
“Special real estate investment funds” may also invest in derivatives; the exposure resulting from
the underlying assets of the derivatives may not be greater than the net asset value of the fund.
The fund may not, in relation to each counterparty, present an exposure greater than one third of
its net asset value.
Quebec Generally, 20% of the fund is invested in liquid assets to provide for liquidity.

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Spain Real estate funds are non financial CIS whose main object is the investment in urban real estate
assets for renting. According to the CIS Royal Decree, the following categories are considered
real estate investments with urban nature:
a) Investments in real estate/properties, included the investments in shares of real estate
companies whose majority of assets are properties designated for renting. The total amount of this
kind of investments cannot exceed 15% of net assets of the real estate fund.
b) Real estate under construction in planning stage, if the construction company has a licence for
building.
c) The purchase of call options if the premium does no exceed 5% of the strike price of the
building.
d) Property rights provided they do not prevent renting.
e) Administrative concessions that allow renting properties.

The buildings in planning stage and purchase commitments cannot exceed 40% of net assets. The
investment in call options cannot exceed 10% of net assets. The properties cannot be sold before
three years since the purchase, except for CNMV authorization.
Real estate funds with corporate form must invest at least 90% of net assets in the aforementioned
real estate investments with urban nature. Real estate with contractual form must invest at least
70% of net assets in the aforementioned real estate assets and they must have a liquidity
coefficient of 10% of net assets of the previous month.
The rest of the assets can be invested in securities traded in Stock Exchanges or organized trading
systems.
Switzerland Permitted investments for real estate funds are:
a) property, including fixtures and fittings;
b) investments in and claims against real estate companies whose sole objective is the purchase
and sale or the rental and lease of their own property, provided that the real estate fund holds at
least two thirds of their capital and voting rights;
c) units in other real estate funds and listed real estate companies for up to 25 percent of the fund’s
total assets;
d) foreign real estate assets whose value can be adequately assessed.
Co-ownership in property is permitted only if the management company or the SICAV can exert a
dominant influence.
Real estate funds are not allowed to invest in non-real estate assets. On the other hand the use of
derivatives is permitted, provided the transactions in derivatives comply with the investment
policy.
UK NURS: A NURS can invest in a wide variety of assets (equities, bonds, gold, derivatives),
although concentration and spread limits apply. In terms of the type of immovables that are
permitted as investments:
the immovable must be situated in a country or territory identified in the prospectus
there must be some certainty of legal ownership (eg if in England it must be a freehold or
leasehold, or the equivalent in other jurisdictions)

PAIFs: For a NURS that wants to be classified as a PAIF, additional criteria will apply. Broadly
these are:
a 60% or greater property holding requirement
a 'property investment business condition' which sets out that the business must consist of:
property rental business
owning shares in UK REITs or their overseas equivalent
a 'balance of business condition', which are a series of tests concerning the generation of income
by the fund and that its assets relate to property investment

REITs: A REIT must have a property rental business which forms its 'tax exempt business'. It can
also have other businesses. However, the tax exempt business may not involve any owner-
occupied properties by the REIT or any associated companies.

A REIT must pass 'balance of business' tests which broadly state that 75% of its profits and assets
must arise from its tax exempt business. Provided they do not exceed 25% of its activities, a REIT

12
 can therefore undertake activities other than running a rental property business. These activities
could be ancillary services associated with the property rental business, or other activities such as
property trading or services.

At least 90% of the properties by value must be freehold or long leasehold or equivalent.
US SEC In order to take advantage of certain tax benefits, a REIT must meet certain requirements imposed
under US tax laws. This requires, in part, that: at the close of each quarter, at least 75% of its
assets must be in: real estate assets (which means real property, interests in mortgages on real
property, and/or shares in other real estate investment trusts); cash and cash items; and
government securities; the entity cannot have more than 20% of its assets in stocks of taxable
REIT subsidiaries; and the entity cannot have more than 25% of the value of its total assets in
securities (other than real estate assets and government securities).

(b) Diversification requirements

Member/
Jurisdiction
Australia There is no regulation in relation to diversification of investments in relation to any type of fund,
including a real estate fund. The level of diversification has to be disclosed to potential investors,
in the obligated disclosure documents.
Brazil In the current rules there’s no requirement of diversification of the real estate fund’s investments.
It is, by the way, usual that real estate funds have only one property in their assets.
In the proposed rules that are about to be submitted to public hearings, however, there’s a
provision for a diversification requirement that would limit to 20% of the net assets of the fund the
bonds from a single issuer, except in cases where this issuer is a public company, a financial
institution, or any company whose financial reports are prepared and audited according to the
rules applicable to public companies.
France OEREFs must:
(i) hold in their portfolios at least 5 properties built for rental purposes;
(ii) which represent at least 20% of the fund's property assets.

Other diversification requirements are provided as regards the financial instruments held by
OEREFs.

New OEREFs are exempted from some restrictions as from their creation for a period of 3 years
(e.g., no risk diversification, no investment limits). In exceptional cases, this period may be
extended.
Germany According to Sec. 73 German Investment Act one real estate property may not exceed 15 % of the
value of the assets of the investment fund while the total of the individual real estate properties
exceeding 10 % has to be no more than 50 % of the value of the assets of the fund. For the
purpose of the calculation all debt is assumed to be not existing.
Hong Kong No such requirement.
Ireland There is a limit of 20% of the real estate fund’s net assets in a single property.
Not more than 25% of net assets may be invested in properties that are vacant, in the process of
development or requiring development. These requirements are not applicable in the case of
qualifying investor funds.
Italy In general terms real estate funds are subject to the same diversification requirements that apply to
other closed-end funds, with the additional prerequisite that no more than one third of funds total
assets are invested into a single property having unique urban and functional characteristics (e.g.,
a palace whose flats are all licensed for residential use).
In addition to the general diversification requirements that regard portfolios of closed-end funds,
real estate funds cannot invest, either directly or through parent companies, more than 10% of
their total assets in shares of firms that engage in building activities.
Japan There are no specific regulations.
Jersey As above, under 3a
Luxembourg The investment in real estate assets must be diversified to an extent that an adequate spread of the

13
 investment risk is warranted. In order to achieve a minimum spread of such risks, UCIs subject
hereto may not invest more than 20% of their net assets in a single property, such restriction being
effective at the date of acquisition of the relevant property. Property whose economic viability is
linked to another property is not considered a separate item of property for this purpose.

This 20% rule does not apply during a start-up period which may not extend beyond four years
after the closing date of the initial subscription period.
Mexico No specific secondary regulation has been issued.
Netherlands There is no regulation in relation to diversification of investments in relation to any type of fund,
including a real estate fund.
Ontario Generally, no single real estate investment can be greater than 20% of the fund’s net asset value.
Portugal For open-ended real estate investment funds the law imposes many diversification requirements.
As to art. 38 of Decree-Law 60/2002: a) the value of the properties and other equivalent assets
must not represent less than 75% of the total assets of the investment fund; b) The development of
building projects must not, as a whole, represent more than 25% the total assets of the investment
fund; c) The value of a single property, or another equivalent asset must not represent more than
20% of the total assets of the investment fund; d) The value of rented properties, or those which
entail other types of onerous use, to a single entity or a set of entities which, under the terms of the
law, control or are in a group relationship, or are controlled, directly or indirectly, by the same
person, individual or legal, must not exceed 20% of the total assets of an investment fund;
e) Holdings in real estate properties must not represent more than 25% of the total assets of the
investment fund; f) They may only invest in property located in Member States of the European
Union and OECD, and investments outside of the European Union must not represent more than
25% of the total assets of the investment fund;

Furthermore, open-ended or closed-ended special real estate funds which are the object of a public
subscription offering and which invest in rural buildings are not permitted to invest in: a) More
than 20% of the total assets of the fund in the same municipality or equivalent territorial district;
b) More than 30% of the total assets of the fund in contiguous municipalities or equivalent
territorial districts. If the assets have been insured, the limits established in items a) and b) shall be
50%.

The provisions set down for open-ended funds also apply to closed-ended investment funds which
are the object of a public subscription offering, with the following adaptations:
a) The development of building projects must not, as a whole, represent more than 50% the total
assets of the investment fund, except when such projects are aimed at the renovation of property,
in which case the limit is 60%; b) The value of a single property must not represent more than
25% of the total assets of the investment fund; c) The value of rented properties, or those which
involve other types of onerous use, to a single entity or a set of entities which, under the terms of
the law, control or are in a group relationship, or are controlled, directly or indirectly, by the same
individual person or legal person, must not exceed 25% of the total assets of an investment fund.
Quebec A fund shall not acquire any single investment in real property if the cost to the fund of such
acquisition (net of the amount of encumbrances assumed) exceeds the greater of:
(i) $5 000 000
(ii) 20 per cent of the net asset value of the fund.
Spain None of the properties or rights can represent more than 35% of the net asset value at the moment
of the purchase. This limit and the investment criteria mentioned in answer 3 (a) must be reached
in three years since the register of the fund.

Properties rented to entities belonging to the same group cannot exceed 35% of net assets. CIS
must comply with this limit in twelve months since the register of the fund.
Switzerland The investments must be diversified by type of property, purpose of use, age, substance of
building and location:

(l) Real estate funds must spread their investments over at least ten properties.
(ll) The market value of a single property may not exceed 25 percent of the fund’s assets.
(lll) The following limits shall apply to the investments defined in a-d:

14
 a. up to 30 percent of the fund’s assets may be invested in building land, including properties for
demolition, and buildings under construction;
b. up to 20 percent of the fund’s assets may be invested in leasehold land;
c. up to 10 percent of the fund’s assets may be invested in mortgage notes and other rights of lien
on real estate;
d. up to 25 percent of the fund’s assets may be invested in other real estate funds and listed real
estate companies.
(IV) The investments defined in paragraph III a and b may together account for up to 30 percent
of the fund’s assets.
(V) The supervisory authority may grant exemptions in motivated individual cases.
UK NURS and PAIFs: Not more than 15% in value of the scheme property is to consist of any one
immovable (the figure of 15% may be increased to 25% once the immovable has been included in
the scheme property).

REITs: It must contain at least three single rental properties (commercial or residential). No one
property must represent more than 40% of the total value of the property rental business.

There must be an adequate spread of investment risk

US SEC See response to Question 3(a).

(c) Permitted borrowings, including the extent to which the real estate assets may be mortgaged

Member/
Jurisdiction
Australia There is no specific limitation on borrowings or on the extent to which real estate assets may be
mortgaged.

Section 601GA(3) in Chapter 5C of the Act provides generally that a managed investment scheme
of any kind only has the power to borrow or raise money if its powers to do so are specified in the
scheme's constitution, and that any other agreement or arrangement has no effect.
Brazil No borrowings are permitted to real estate funds according to the Law.
France - Up to 40% of the fund's assets in property freeholds and property partnerships (in proportion of
the participating percentage in those partnerships).
And
- Up to 10% of the value of the funds’ other assets in respect of cash borrowing.
Germany According to Sec. 82 Para. 3 Sentence 3 German Investment Act mortgages may not exceed 50 %
of the fair market value of the real estate properties held; correspondingly the actual long term
borrowings are limited by Sec. 80a German Investment Act. Further to this, additional short term
borrowing may be permitted according to Sec. 53 German Investment Act under certain
circumstances not exceeding 10 % of the net asset value of the investment fund.
Hong Kong The aggregate borrowings of a REIT shall not at any time exceed 45% of its total gross asset
value. The REIT may pledge its assets to secure such borrowings. However, a REIT shall not
lend, assume, guarantee, endorse or otherwise become directly or contingently liable for or in
connection with any obligation or indebtedness of any person nor shall it use any assets of the
REIT to secure the indebtedness of any person nor shall it use any assets of the REIT to secure
any obligations, liabilities or indebtedness without the prior written consent of the trustee.
Ireland The real estate fund is permitted to borrow up to an amount equal to 25% of the value of the net
assets of the fund, which borrowing may be generally secured on the real estate assets. (This
provision may be disapplied in the case of a professional investor fund to permit borrowing of up
to 100% of net assets, and the provision is disapplied for qualifying investor funds). All fund
types must include full disclosure in the prospectus in relation to intended borrowing.

Retail real estate funds may not invest more than 25% of net assets in properties which are subject
to a mortgage. The amount of the outstanding mortgage on any property must not represent more
than 50% of the value of the property.

15
Italy Similarly to all closed-end funds, real estate funds can recur to external debt for the purpose of
serving shares early redemption requests (before the fund expiration date) as consented by the
funds bylaws; this debt must be limited to the 10% of total assets.
In any case, real estate funds can raise debt for also other purposes than shares redemption,
including in first place regeneration/development of areas and restructuring (or change of
destination) of real estate assets, within the limit of 60% of the investments in real property and
equity of real estate companies and of 20% of residual assets value. The assets held by the funds
can be pledged as collateral (real estate assets can therefore be mortgaged).
Japan Investment trusts and investment corporations are required to prescribe a limitation on borrowing
money and issuing investment corporation bonds in their trust deeds or articles of incorporations.

If special purpose companies and special purpose trusts that there is a limitation on borrowing
money based on their securitization plan, the borrowing is only allowed by using relation to such
as banks.

Real estate syndication is required to disclose whether the fund has borrowed money or not in the
documents that deliver before concluding the contract in the case of the contract with financing.

There are no specific regulations for other real estate funds including partnership- type funds.
Jersey Recognized Fund not to exceed 10% of value of that part of the property of the pool which does
not consist of immovables. Certain approved mortgages up to 15% do not count as borrowing
OCIF Funds
S6.15 The OCIF may borrow for the purposes of purchasing real property and for short term
purposes to defray expenses or facilitate redemption. The maximum aggregate amount which may
be borrowed is 35% NAV. Borrowing for the purpose of purchasing real property must not exceed
50% of the purchase price of the real property.
S6.16 Relaxation on some limits for OCIF with NAV less than £5m and during the early life of an
OCIF may be permitted.
Luxembourg The aggregate of all borrowings of the UCI may not exceed in average 50% of the valuation of all
its properties. In certain cases a derogation going up to 70% of the valuation of all its properties
have been given to real estate investment funds.
Mexico No specific secondary regulation has been issued.
Netherlands The is no regulation on permitted borrowings or the extent to which the real estate assets may be
mortgaged.
Ontario Mortgages cannot be more than 75% of the value of the real estate. Total borrowing cannot
exceed 50% of the total asset value of the fund.
Portugal The level of indebtedness must not represent more than 25% of the total assets of the open-ended
investment fund (art. 38/g Decree-Law 60/2002) or 33% of the total assets of the close-ended fund
(art. 46).
Quebec Borrowings - Limit on Leverage: A fund shall not assume or incur any indebtedness under a
mortgage on the security of real property unless, at the date of the proposed assumption or
incurring of indebtedness: the aggregate of the amount of all indebtedness secured on such real
property and the amount of additional indebtedness proposed to be assumed or incurred does not
exceed 75 per cent of the market value of such real property; and the aggregate of the total
indebtedness of the fund under mortgages on the security of real property and the amount of
additional indebtedness proposed to be assumed does not exceed 50 per cent of the total asset
value of the fund.
Borrowing other than by way of mortgages on the security of real property is prohibited except for
temporary borrowings, up to a maximum of 10 per cent of net asset value of the fund, to meet
redemptions.
Spain Real estate funds can finance the purchase of properties mortgaging the assets. This finance can
be used also for renovating buildings. Total finance cannot exceed 50% of net assets and investors
must be informed in the annual and quarterly report of the total amount of liabilities.
This limit does not include finance relating to public protected residential buildings.
Real estate funds are also authorized to borrow up to 10% of their assets in the case of transitory
financial difficulties.
Switzerland In relation to pledging land and ceding the rights of lien as collateral the encumbrance of all

16
 properties may not exceed on average half of the market value (Art. 96 CISO).
UK NURS: Not more than 20% in value of the scheme property is to consist of immovables that are
subject to a mortgage and any mortgage must not secure more than 100% of the value of the
property.
The aggregate value of: (a) the mortgages secured on immovables; (b) borrowing of the scheme;
(c) transferable securities that are not approved securities; must not exceed 20% of the value of
the scheme property.

PAIFs: In addition to the rules for NURS, it is proposed that PAIFs must also meet a 'loan
creditor' condition, which seeks to make sure borrowing arrangements are not abused for tax
purposes.

REITs: Under its articles of association, borrowings must not exceed 65% of gross assets
US SEC A publicly-offered real estate fund must, in its registration statement, describe its policies with
respect to borrowing money, including whether such policies may be changed by the officers and
directors without a vote of securities holders, the extent to which the registrant proposes to engage
in such activities, and the extent to which it has engaged in such activities during the past three
years.

(d) Any additional disclosure requirements / reporting requirements

Member/
Jurisdiction
Australia There are no additional disclosure requirements that arise solely in relation to a real estate fund.

Part 7.9 in Chapter 7 of the Act makes general provision for disclosure documents to be given in
relation to financial products, including by the responsible entity of any kind of managed
investment scheme in relation to the scheme. These disclosure documents are generally required
to describe the significant characteristics, features, risks and benefits of a financial product, and its
costs.
Brazil Both the current rules and the proposed ones stipulate that a set of information must be provided
by the real estate fund administrator to the public periodically or eventually.

The prospectus must contain:

Investment policy, including, but not limited to: what assets may bought by the fund, geographic
location of property that can be acquired, types of property or rights that can be acquired, whether
it is intended to gain from capital gains or rent income, maximum percentage of assets that can be
invested in only one property, the main characteristics of mortgage backed securities if allowed by
the by-law, criteria for selection of other securities allowed by the by-law, any other information
relevant to the investor

Properties description: specification of which assets the funds already owns and which ones it
merely plans to invest in; detailed information on the conditions related to any property that
accounts for more than 10% of the net assets value of the fund; studies of financial, economic,
technical and commercial viability of the properties; budget and schedule of constructions, if this
is the case; fund’s administrator’s opinion on the sufficiency or the insurances contracted for the
properties.

Operating data: qualification and main activity of tenants or debtors for any property expected to
generate 10% or more of the fund’s gross income; percentage of occupation, for income property,
or of default, for mortgage backed securities, for each of the five years previous to the registry of
the real estate fund; description of taxes applicable on the properties and on the operations of the
fund; dentification and qualification of the agents responsible for due-diligence and assessment of
value of properties

17
 Information that must be provided periodically to the investors:
Monthly: net asset value of the fund and of its quotas, and yields for the period; value of the
investments of the fund, including description of assets and rights that integrate its capital;
Information on constructions’ developments and on investments already undergone,
Biannually: administrator’s report, financial statements, auditor’s report

Information that must be provided periodically to the investors: call for quota-holders’ assemblies
and related documents; prospectus, advertisements and announcements of distribution of quotas;
up to eight days after a general quota-holders assembly, its minutes; material event
announcements

Also, the fund’s administrator must keep in its website an updated version of the by-law of the
fund at all times
France The prospectus must contain a description of the costs and the risks related to the investment in
such funds, including a prominent risk warning pertaining to the circumstances within the real
estate markets which can cause difficulties in meeting the redemption requests.
The prospectus must fully disclose the applicable redemption procedures (in particular, the cut-off
time and date for centralising subscription and redemption orders for units and shares, the date for
determining the net asset value, the latest date at which the net asset value will be calculated and
published).
Germany Generally speaking open-ended real estate funds have to fulfil the same disclosure requirements as
other open-ended investment funds while some extra details concerning the real estate property
directly held by the investment management company on behalf of the fund or indirectly through
shares held in qualifying real estate companies are to be disclosed.
Hong Kong Manager of a REIT has an obligation to inform holders, as soon as reasonably practicable of any
information or transaction concerning the REIT which: is necessary to enable holders to appraise
the position of the REIT; or is necessary to avoid a false market in the units of the REIT; or
might be reasonably expected to materially affect market activity in the REIT or affect the price of
the units of the REIT; or requires holders’ approval.

A circular shall also be issued to holders in respect of (i) transactions that require, or in the
reasonable opinion of the trustee or the REIT manager require, holders’ approval; and (ii) material
information in relation to the REIT. There are also ongoing disclosure and reporting requirements
such as issue of annual and semi-annual reports.
Ireland The prospectus must contain a description of the risks involved in this type of investment fund
and, in the case of an open-end fund, include a prominent risk warning, which will make reference
to circumstances in real estate markets which can cause difficulties in meeting redemptions.

Real estate funds are generally established as closed end funds or as investment funds with limited
liquidity. A real estate fund which proposes to offer redemption rights must fully disclose the
proposed redemption procedures.
Italy In addition to the disclosure obligations that must be fulfilled by all investment funds, real estate
funds must disclose the following information:
the valuation reports from third independent advisers concerning real estate assets and shares of
real estate firms which are either bought from or sold to the funds, or delivered to the funds as
subscription payment, by the shareholders or other group members of the management companies;
information regarding the investors which deliver real estate assets and equity of real estate firms
as payment for the subscription of funds shares, and regarding the contractual terms of such
contributions; information concerning the debt raised by the funds to carry out early shares
redemption; information about the group membership of the financial intermediary appointed of
checking the consistency of the real estate assets and shares of real estate firms brought to the
funds for subscription settlement with the funds investment strategies; the decisions taken at the
funds shareholders meetings.
Japan Investment trusts and investment corporations are required to disclose the address, related
information on location and each property. In cases of rented properties, operating ratios and
aggregate rent revenues by each property must be disclosed.
In the case of a listed real estate fund, the exchange requires timely disclosure to the asset

18
 management company of the fund. Also, the Investment Trusts Association Japan, the SRO,
provides guidelines on disclosures including the methods of valuation, the format of disclosure,
and etc.
Special purpose companies and special purpose trusts are required to disclose the outline of assets
and asset management as well as resolution of the companies/trusts in advance in the
securitization plan.
Real estate syndications are required to disclose the addresses of properties pertaining to the
transaction, specific information on location, and appropriate prices and valuation methods for
each property. In the case of rented property, operating ratio and aggregate rent revenue must be
disclosed.
There are no specific regulations for other real estate funds including partnership-type funds.
Jersey Recognized Fund, state Valuer’s name, qualifications, regulatory status and material terms of
agreement
Luxembourg - The issue prospectus must give a description of the investment risks inherent to the UCI’s
investment policy.
In addition, the prospectus must provide details of the type of commissions, expenses and charges
to be borne by the UCI and the way in which they are calculated and charged.
- Periodical reporting requirements do not differ from the general rules applicable to UCIs in
Luxembourg.
Mexico No specific secondary regulation has been issued.
Netherlands As for other CIS, the prospectus should contain all the information a potential investor would like
to know to base the investment decision on. That includes themes like risks, costs, diversification,
mortgages, the nature of the property, the valuation method and frequency, the redemption
possibilities etc.
In the annual report the management these same themes are showed in retrospect.
Ontario The one real estate CIS is required to file confidential appraised values for its real estate
investments. It is also required to show a summary of its real estate investments by region of
location.
Portugal The management company shall draw up and keep an up-to-date prospectus for each investment
fund, the contents of which, permit the investor to make informed decisions regarding the
proposed investment. The prospectus should include a clarification that it only includes essential
information on each investment fund, and that interested parties may consult more detailed
information, including the management rules and the regulations and accounts of the investment
fund, at the premises of the management company or of the custodian and in all places and
through all means by which it is planned to market the investment units of the investment fund.
In the (semi-) annual reports the management companies shall make public a detailed breakdown
of the composition of portfolio by each investment fund they run. They must also publish notice
of the distribution of the results of the investment funds.
Quebec The one real estate CIS is required to file confidential appraised values for its real estate
investments. It is also required to show a summary of its real estate investments by region of
location.
Spain Public Quarterly reports to investors, must be elaborated by the management company and
delivered to investors, as any other CIS and should contain Financial statements, Portfolio
statement, NAV distribution, Management report, Relevant issues etc.

Investors must be informed of the total amount of liabilities in the annual and quarterly report .
The asset management company or the real estate company must inform in the prospectus and
economic reports of the internal procedures adopted to avoid conflict of interests and about the
trades made.

Also a new regulation is foreseen that will establish new information requirements for the
valuation reports made by the real estate valuer.
Switzerland The inventory of real estate funds must be broken down as a minimum into:
a. residential buildings; b. commercially used properties; c. mixed-use properties; d.
condominiums; e. building land, including properties for demolition, and buildings under
construction; f. buildings in leasehold; g. building land encumbered with leasehold; h. units in
other real estate funds and real estate companies; i. mortgages and other loans secured by

19
 mortgage.

The following information on each property must be included:

a. address; b. purchase price; c. estimated market value; d. gross income generated.
UK NURS: Where the scheme operates limited redemptions this must be disclosed. For any scheme
that invests in moveable and immovable property an estimate of any expenses likely to be
incurred by the scheme in respect of moveable and immovable property in which the scheme has
an interest must also be provided.

PAIFs: Schemes that will be PAIFs must make certain notifications to the taxation authorities.
The manager must take reasonable steps to ensure that dividends are not paid to, or for the benefit
of, any corporate investor who has a greater than 10% interest in the vehicle. The FSA proposes
that PAIF managers undertake periodic reviews of the register and take reasonable steps to keep
investors informed of the 10% corporate ownership rule.

It is also proposed within HMT regulations that PAIFs include a 'genuine diversity of ownership'
condition which must be disclosed within the instrument of incorporation and prospectus in issue
for the time being (and including any supplements to the prospectus).

REITs: For investment entities that have more than 20% of their assets invested in property a
property valuation report will need to be included in their annual report and accounts.
US SEC Publicly-offered real estate funds are generally required to register their securities with the SEC
on a Form S-11.

The Form S-11 is a form specifically tailored for companies in the real estate business and
requires disclosures about material risks, management’s discussion and analysis of financial
conditions and the results of operations, and descriptions of the fund’s real estate investments.

In addition, like other publicly-offered operating companies, publicly-offered real estate funds
would be required to make regular periodic disclosures, including quarterly and annual financial
reports with audited financial information.

(e) Requirements in relation to the management of the real estate fund

Member/
Jurisdiction
Australia There are no specific requirements in relation to the management of a real estate fund.

Chapter 5C of the Act makes provision for the governance of any kind of managed investment
scheme. These provisions require the responsible entity to be solely responsible for all aspects of
the operation of the scheme – see Part 5C.2.
Brazil The Federal Law governing the real estate funds in Brazil stipulates that they must be managed by
institutions authorized by CVM (Brazilian Securities Commission). These institutions have to be:
an investment bank or a bank authorised to act in the mortgage industry, a brokerage firm, or a
firm authorised to act in the capital market offering securities.

In the proposed rules for the industry, it is established that if the real estate fund’s by-law allows it
to invest in securities, the administrator of the fund must be an entity authorised by CVM to act as
asset manager or the fund will have to contract one such entity. The administrator company will
also have to indicate a statutory director to be personally responsible for each real estate fund.
Also, the proposed rule lists services that must be provided by the administrator, directly or by
contracting others: maintenance of a technical department capable of property valuation; treasury,
control, and processing of securities; control of issuance and redemption of quotas; custody of
financial assets; independent auditing; management of assets owned by the fund.
France Investors in an OEREF are relying on the asset management company’s skill and expertise in
selecting underlying property investments and financial instruments in order to achieve the fund’s

20
 objective.

For a management company to be authorized under French law, the AMF must be satisfied that it
(including its managers) has specific experience in the area of investment in real estate.
Other organisational rules and rules of conduct (such as conflicts of interest rules- please see
answer to question 14) which are applicable to the management of all types of collective
investment schemes will also apply.
Germany Open-ended real estate investment funds may only be set up and managed by regulated
management companies (Kapitalanlagegesellschaften) that require a special permit to be granted
by the Regulator (Bundesanstalt fuer Finanzdienstleistungsaufsicht - BaFin). While processing the
application for a permit of a company asking for the status of management company, BaFin
checks good repute and qualifications of the directors of the company applying as well as the
soundness of the organisational structure of the company with respect to the intended management
of open-ended real estate investment funds.
Hong Kong Every REIT has to appoint a REIT manager licensed under Part V of the Securities and Futures
Ordinance (“SFO”) and approved by the SFC to manage the REIT.
The REIT manager shall possess sufficient experience and sufficient human, organisational and
technical resources for the proper performance of its duties. It shall also maintain satisfactory
internal controls and written compliance procedures which address all applicable regulatory
requirements.
The REIT manager shall demonstrate that it has sufficient financial resources at its disposal to
enable it to conduct its business effectively and meet its liabilities.
Ireland In principle unit-holders in a real estate fund are relying on a manager’s/investment manager’s
skill and expertise in selecting underlying property investments in order to achieve the fund’s
objective. The Financial Regulator must be satisfied that the management company, general
partner and/or, where applicable, investment advisory company, have specific experience in the
area of investment in real estate.
Italy The business conduct rules concerning management of investment funds set diligence, fairness
and transparency requirements regarding the operations run by the management companies. In
particular, these are obliged to search all the appropriate information on their funds’ eligible
assets, and hire all the professional skills and tools that are needed, in order to be able to
implement strategies which strictly correspond to the funds’ investment objectives and target risk
profiles.
In terms of the management of closed-end funds, as real estate funds are, these general principles
translate into the need to lay down adequate due diligence procedures for a thorough assessment
of the investment/liquidation opportunities both from the perspective of risk and as regards
compatibility with the strategies adopted by the management company. As for the last purpose,
management companies are specifically required to articulate their investment strategies into
business plans, whose utility is meant to go further than the usual budgeting and control
functionalities. These documents should in fact work as the main tools to reconcile current
operations and long term objectives of the funds, providing also room for the dialogue between
valuation methods and hypotheses and the remarks/measurements offered by the risk management
services of the company.
Japan Asset management companies that manage investment trusts, investment corporations or
partnership-type real estate fund are required to register with FSA Japan as financial instruments
firms (which conduct investment management business). In addition, the regulations on the
conduct of financial instruments businesses are imposed on firms.
As for real estate syndication business, sources of distribution are limited to revenue or profit
generated by real estate transactions.
Jersey -
Luxembourg With regard to the professional qualification, the directors of the management bodies and, where
applicable, the investment advisors, must establish a specific experience in real estate assets.
Mexico No specific secondary regulation has been issued.
Netherlands The management of all CIS (including those investing in real estate) has to pass the ‘fit and
proper’-test of the regulator. Although not defined in regulation, ‘Fit’ to manage a real estate fund
mean in practice that a manager should have a specific experience in managing real estate objects
or the investments in them.

21
 Ontario NA
Portugal The management of real estate funds is carried out by a real estate fund management company,
hereinafter referred to as management company, having its central management and control in
Portugal. The management of real estate funds may also be exercised by a securities investment
fund management company, subject to the rules for management companies and for the real estate
funds which they manage. Management companies shall adopt the form of a public company
limited by shares, and the respective equity capital shall be represented by registered shares.
According to the new framework that ais being launched for the real estate investment companies,
the same rules and the same duties apply to the company in relation to the management of the real
estate investment vehicle.
Quebec NA
Spain The majority of members of the Board must have knowledge and experience in financial and real
estate markets (at least two years).
Switzerland The persons responsible for the management (board of directors) and the business operations
(executive board) must be suitably qualified for the intended activity on the basis of their
education, experience and career history.
UK NURS and PAIFs: The authorised fund manager must obtain the consent of the depositary for the
acquisition or disposal of immovable property.

REITs: Those responsible for managing the investments must have adequate experience
US SEC Disclosure about the management team must be made for all publicly-offered real estate funds,
including the identification of principal executives and officers and disclosures about the
compensation of certain executives.

(f) Requirements in relation to any minimum level of distributions to be made by the real estate fund

Member/
Jurisdiction
Australia This is not stipulated in the Corporations Act administered by ASIC. However, there are
consequences for non-distribution of income under taxation law.
Brazil The current rules determine that a real estate fund must raise enough resources to carry on with all
the investments listed in its prospectus. The funds raised must be invested in fixed income bonds
or investment funds for up to 180 days. After this period, if not enough capital was raised, the
fund must return all that was invested to the quota-holders along with the income generated.
The proposed rule is more flexible to this matter, and allows that a minimum investment is
stipulated in the by-laws even though the fund intends to raise a higher value.
France Contractual OEREFs have to distribute at least 85% of their net income and 85% of their profits
from sale.

Corporate OEREFs have to distribute at least 85% of their net income and 50% of their profits
from sale.
Germany Other than the regulatory practice according to which a management company has to clearly state
in the fund rules whether a fund is a profit retaining or a profit distributing fund and concerning
the latter according to which a profit distributing fund may postpone the distribution of profits to
future business years as long as retained profits in total do not exceed 15 % of the net asset value
of the fund, there is no legal requirements with respect to distributions defined in the German
Investment Act.
Hong Kong A REIT shall distribute to unitholders as dividends each year an amount not less than 90% of it
audited annual net income after tax.
Ireland None
Italy -
Japan In order to receive a tax exemption for fund–level income in the tax system, investment trusts,
investment corporations, special purpose companies and special purpose trusts are required to
distribute dividends over 90 percent of the distributable profit to investors.

As for real estate syndication business, sources of distribution are limited to revenue or profit

22
 generated by real estate transactions.
Jersey -
Luxembourg There are no such requirements.
Mexico -
Netherlands -
Ontario NA
Portugal No requirements are made made by the law. Nevertheless, the funds’ bylaws may impose a
minimum level of distribution.
Quebec There is no requirement in that regard.
Spain The real estate funds currently registered with the CNMV do no not make distribution of benefits,
they accumulate them. There is no specific regulation about a minimum level of distribution to be
made by this kind of funds.
Switzerland The management company and the SICAV ensure that real estate fund units are regularly traded
through a bank or a securities dealer on a stock exchange or over the counter (art. 67 CISA).
UK NURS and PAIFs: An authorised fund must have a distribution account to which the income
property is transferred at the end of the relevant accounting period. The distribution must be made
by way of a dividend or an interest payment within four months of the end of the relevant
accounting period.

REITs: A minimum of 90% of the REIT's net taxable profits (after interest and capital
allowances) from the ring-fenced letting business must be distributed to investors

The REIT is required to withhold basic rate tax on the distribution of profits paid to investors. It
must not retain more than 15% of its net profits, before gains and losses, on disposals
US SEC A REIT must distribute at least 90% of its taxable income to shareholders in order to qualify as a
pass-through vehicle under the U.S. tax code. If it meets this threshold, a REIT is permitted to
deduct dividends distributed to shareholders from its corporate taxable income. Therefore, most
REITs remit all of their taxable income to their shareholders and owe no corporate tax.

(g) Any requirements on majority ownership in real estate assets or real estate assets under development

Member/
Jurisdiction
Australia This is not stipulated in the Corporations Act administered by ASIC.
Brazil There’s no such requirement. However, if a fund will have a non-controlling participation in a real
estate venture, the inherent risks must be mentioned in the prospectus.
France Under French law, OEREFs have to ensure they have the majority of voting rights (more than
50%) when investing in interests in non-listed property partnerships or other forms of non listed
property companies.

OEREFs may own less than a “majority ownership and control” in interests in non-listed property
partnerships or other forms of non listed property companies. However, investments in such
properties should in aggregate not exceed 10% of the properties asset value of the OEREFs.
Germany Open-ended real estate investment funds in Germany have to invest at least 51 % of the net asset
value in directly held real estate property. Up to 49 % of the net asset value of a real estate
investment fund can inter alia be invested indirectly in real estate property by means of shares
held in real estate companies. However, real estate property indirectly held through shares not
granting a majority of voting rights and capital to alter the statutes of the relevant real estate
company may not exceed 30 % of the net asset value of the fund.

Real estate property with buildings already under construction as well as real estate property
consisting of vacant lots intended for prompt construction may each not exceed 20 % of the net
asset value of the fund, thus 40 % in total.
Hong Kong Under the REIT Code, the REIT manager has to ensure that the REIT has majority (more than
50%) ownership and control in each property at all time. This will enable the REIT manager to

23
 exercise control over the management and strategic development of the properties. In order to
provide a certain degree of flexibility to cater for practical situations, a REIT may own less than a
“majority ownership and control” in a property. However, investments in such properties should
in aggregate not exceed 10% of the net asset value of the REIT.
Ireland There are no requirements in relation to majority ownership and requirements in relation to assets
under development are mentioned in the context of the response to question 3 (b) above.
Italy
Japan Special purpose companies and special purpose trusts prohibit the acquisition of unfinished
buildings, except so-called development-type schemes.
Jersey No real property should be acquired by the OCIF if it is subject to any mortgage, charge or other
security interest unless it is a mortgage:-
a) where the total outstanding sums do not exceed 50% of the unmortgaged value of the property;
b) which may be discharged on demand or within 28 days by repayment of all outstanding sums;
c) is not secured either immediately or contingently in any other property.
Luxembourg There are no legal requirements on majority ownership in real estate assets or real estate assets
under development.

Due to the fact that in practice real estate funds seldom possess direct ownership in property
consisting of land and/or buildings, the regulatory practice is that the offering documents of real
estate funds mention if the fund is controlling each real estate property through a holding
company. These holding companies are in principle fully controlled.
Mexico -
Netherlands There are no legal requirements on majority ownership in real estate assets or real estate assets
under development.
Ontario NA
Portugal For open ended real estate investment funds, the value of the properties and other equivalent
assets, defined as such by CMVM in a Regulation, must not represent less than 75% of the total
assets of the investment fund. The development of building projects must not, as a whole,
represent more than 25% the total assets of the investment fund.
Quebec NA
Spain Real estate assets must be 100% property of the fund.
Switzerland See above 3.a.
UK NURS and PAIFs: Not more than 50% in value of the scheme property is to consist of
immovables which are unoccupied and non-income producing or in the course of substantial
development, redevelopment or refurbishment.

REITs: Properties which are unoccupied, non-income producing, or which are in the course of
substantial refurbishment, must not exceed 25% of the fund's portfolio value.

No owner-occupied properties are allowed and one property may contribute a maximum of 40%
of the total fund value.

Properties under development are acceptable provided they are held for income and not sold
within three years of completion.
US SEC No.

4. Are listed closed-end real estate funds regulated in substantially the same way as other listed companies
in your jurisdiction, such as rules in relation to takeovers, market misconduct, disclosure of interests, pre-
emptive rights, disclosure and repurchases?

Member/
Jurisdiction
Australia
Brazil Yes, in relation to market misconduct and disclosure, but not in relation to takeovers, disclosure of
interests, and repurchases.

24
France Not applicable: French law does not today provide for the listing of Real Estate Funds.
Germany Closed-ended real estate investment funds are not permitted under the German Investment Act.
Companies organised as REITs (REIT-Aktiengesellschaften) according to the German REIT Act
are generally regulated like other listed companies while restrictions apply to their ownership
structure with respect to taxation matters concerning dividend payments to their shareholders, i.e.
double taxation treaties.
Hong Kong REIT Code is a principle-based code which gives the SFC flexibility in applying the regulations to
the REITs. The SFC in general seeks to regulate REITs with reference to requirements in the
Listing Rules as they are in substance like listed companies, unless the REIT Code has specific or
other requirements.
Takeovers: The Takeovers Code does not currently apply to REITs.
Disclosure of interests: The disclosure of interests regime applicable to listed companies under the
SFO does not apply to REITs at present. It is however the SFC’s policy that provisions
substantially equivalent to those applicable to listed companies should be adopted in trust deeds of
REITs.
Pre-emptive rights: Unless otherwise permitted by the REIT Code, all issue of units by the REIT
shall be offered to the existing holders pro rata to their existing holdings. Under the Code, if new
units are not offered to holders on a pro rata basis, holders’ approval by way of ordinary
resolution at a general meeting is required, unless the aggregate number of new units issued
during the financial year does not increase the total number of units outstanding at the end of the
previous financial year by more than 20% (or such lower amounts as may from time to time be
specified by the SFC).
Disclosure: REITs are subject to similar disclosure requirements as applicable to listed companies,
such as timely disclosure of price-sensitive information and financial reporting requirements.
Repurchases: As a REIT is structured as a closed-ended fund, unitholders have no right to demand
for the repurchase or redemption of their units. REIT managers are not permitted to repurchase or
redeem any units of their REITs unless permitted to do so by the relevant codes or guidelines
issued by the SFC from time to time.
Ireland Listed closed-end real estate funds are subject to the Irish legislation which implements each of
the Market Abuse Directive, Prospectus Directive and Transparency Directive. Where the closed-
end fund is a corporate entity, legislation implementing the Takeover Directive is also applicable.
Unlike other commercial companies, listed closed-end real estate funds are also subject to
regulation by the Financial Regulator.
Italy
Japan Yes
Jersey Yes
Luxembourg Yes, listed closed-end real estate funds are regulated in substantially the same way as other listed
companies.
Mexico No specific secondary regulation has been issued.
Netherlands For listed real estate funds substantially the same rules apply as to other listed companies, such as
rules in relation to takeovers, market misconduct, disclosure of interests, pre-emptive rights,
disclosure and repurchases.
Ontario Although there are no closed-end real estate funds at the moment, they would be regulated in
substantially the same way as other listed investment funds (subject to the same prospectus and
continuous disclosure rules).
Portugal No special rules are provided by law to listed close-end real estate funds. They are subject to the
same rules as any other issuer of listed securities, namely to the Portuguese Securities Code.
Quebec Yes, they are subject to the provision of the Quebec Securities Act and regulations as for any
other listed companies.
Spain Actually there are no listed closed-end real estate funds, if there were any, general regulation
should apply.
Switzerland At the moment only open-ended CIS (14 contractual investment funds, see above 2.) are listed on
the Swiss stock exchange. Regarding the general regulation of closed-ended real estate funds in
the form of LLPs see above 3.
UK Yes
US SEC Yes.

25
Valuation

5. Is an independent valuation of the real estate assets required? If so: at what frequency? What
requirements are applied to the valuer / valuation process?

Member/
Jurisdiction
Australia There is no direct requirement for the valuation of the assets of a managed investment scheme,
including a real estate fund, to be independent. However, section 601FC of the Act imposes duties
on the responsible entity for any kind of scheme and these include to act honestly and to act in the
best interests of members of the scheme. Also, it is a condition on all Australian Financial
Services Licences, including those licences authorising a responsible entity to operate a managed
investment scheme that the licensee have in place adequate arrangements to manage conflicts of
interest. ASIC has generally indicated that provisions in the compliance plan for a scheme that
invests in real estate should contemplate independent property valuation.
The duties imposed on the responsible entity for a scheme include a general requirement to ensure
that the scheme property is valued at regular intervals appropriate to nature of the property. ASIC
has generally indicated that provisions in the compliance plan for a scheme that invests in real
estate should contemplate valuation at least every three years.
Brazil Although properties are accounted by its acquisition cost, at the end of each semester, the fund’s
management report must give, among other information, the market value of the assets and rights
owned by the fund, including its average increase or decrease in value. The criteria used for the
valuation must also be mentioned in the report. According to the current rules, these criteria must
be in accordance with the ones used in the real estate market.

It is also admissible, according to the current rules, that an investor pays for quotas of the fund
with property or rights related to property. In this case the valuation of the assets must be made by
three experts, or by a specialized independent company. The valuation report must contain details
of the criteria used and must be approved by the quota-holders in a general assembly. To this
situation, the proposed rule is a bit more detailed and determines that the administrator of the real
estate fund must act with best efforts to ensure that the information of the valuation report is
accurate. Also, this kind of purchase of quotas will be limited to a period that must be stipulated
by the fund’s by-law.
France Each property asset must be valuated four times a year by two qualified independent valuation
agents who are appointed by the management company. Once a year, each property is subject to
an “expertise immobilière” (i.e., a valuation after a complete visit of the property).
One of the two valuation agents determines the value of a property and the other critically checks
such a value. For the purpose of the annual “expertise immobilière”, the valuation agents have to
rotate each year.
Valuation agents have to immediately report to the depositary, the management company, the
auditor and the regulator any difficulties encountered in executing the valuation.
These valuation agents must issue a valuation report (which explains their valuation methodology)
and send it to the OEREF’s asset management company, depositary and auditors. The valuation
report must be made available to the OEREF’s subscribers.
The valuation agents are appointed subject to the approval of the AMF. Their mandate is limited
to 4 years. For them to be approved, the valuation experts have to have the necessary
qualifications and be independent.
In any case, the management company remains responsible for the valuation of the assets.
Germany For the purpose of valuation of the real estate assets of the open-ended real estate investment fund
already held, the law provides for committees of independent valuers. At least once a year all real
estate property of the fund is to be valued by a committee. A committee consists of three valuers.
An investment management company may set up more than one committee.
Members have to be independent, trustworthy and accordingly qualified individuals with special
experience in the field of valuation of real estate property.
A valuer may generally serve no longer than 5 years as a member on a committee of a certain
investment management company, unless he confirms that in the previous four years prior to the
last year of the term his proceeds from the membership on the committee did not exceed 30 % of

26
 the total proceeds in this period of time; in this latter case the term may be extended on a yearly
basis.
The investment management company has to notify the regulator (BaFin) about the nomination of
a valuer; in the notification it has to be outlined that the valuer fulfils the above mentioned
criteria. As a last resort the Regulator (BaFin) may insist that another valuer is appointed if a
nominated valuer does not or no longer fulfil the criteria.

Prior to the acquisition of real estate assets (purchase transaction) the relevant real estate has to be
valued by an independent valuer not a member of an above mentioned committee set up by the
investment management company.
Hong Kong Independent valuation of REIT’s assets is required once a year, and in any event for the purposes
of issuance of new units. Independent valuation is also required to be conducted on real estate to
be acquired or sold by the REIT.

The principal valuer shall be independent of the REIT, the trustee, the REIT manager and each of
the significant holders of the REIT. The principal valuer shall have key personnel who are
members of the Hong Kong Institute of Surveyors and who are qualified to perform property
valuations.

The valuation methodology adopted by the principal valuer shall follow the “Valuation Standards
on Properties” published from time to time by the Hong Kong Institute of Surveyors or the
International Valuation Standards issued from time to time by the International Valuation
Standards Committee.

Where overseas properties are involved, the principal valuer may appoint an overseas valuer to
assist in preparing the valuation. However, the principal valuer shall remain fully responsible for
the work carried out by the overseas valuer and shall certify the valuation report of such overseas
valuer.
Ireland The management company of the real estate fund must appoint a qualified independent valuer or
valuer(s). The basis for the appointment must be set out in the prospectus and details of the
appointment(s) must be provided in the periodic reports.
The fund’s assets must be valued at market value at least twice yearly, with provision being made
for more frequent valuation to be undertaken if market conditions warrant it. The net asset value
(‘NAV’) must be made available after a valuation of the portfolio has taken place.
Italy As for all closed-end funds, computation of net assets value (NAV) must occur every time that
subscription of new shares and/or early redemptions are consented according to the fund’s own
rules (bylaws). NAV must anyway be calculated at least once per semester, in occasion of the
release of funds annual financial statements and half-yearly accounts.
The Italian regulatory framework concerning investment funds impose a mandatory intervention
of independent advisers (defined in the answer to question1 ) every time that valuation of real
estate assets and of non listed shares of real estate companied must be processed into the NAV
calculation.
Estimates and reports produced by independent advisers can be disregarded by the fund or by the
fund management company (for contractual investment funds – typical case in Italy), which is
responsible for the computation of fund’s total and net asset value, but in this case the manager
must provide a justification for this decision on grounds of the overarching principles concerning
real estate valuation.
The Italian regulatory framework requires that all available information is processed in the
valuation of real estate assets, regardless of whether this is carried out by the independent advisers
or by the fund managers. This process should ultimately result in the computation of estimates
which appropriately reflect the current value of the assets, having also regard to their current use
and possible different future destination. While the valuation process should in theory conform to
principles of accuracy, robustness and consistency with the economic fundamental and
environmental characteristics of the property. In practice, such flexible approach allows a high
level of discretion with respect to the choice of the appropriate valuation method and hypotheses,
which eventually results in idiosyncratic applications and volatile valuation estimates. Some of the
major issues that according to the supervisory experience are thought to curb the reliability of real

27
 estate funds valuation processes are commented in more details in the last section of this
document ( see the answer to question n.16).
Japan Investment trusts, investment corporations, special purpose companies and special purpose trusts
are obliged to examine the valuation of their assets by basing their examinations on valuations by
real estate appraisers.
Although there are no special regulations for the valuation method of the real estate syndication
business, real estate syndication are required to explain the transaction price of the assets, whether
valuation has been done by real estate appraisers or not, to investors before the conclusion of
contract with investors.
There are no specific regulations for partnership-type real estate funds.
Jersey Recognized Fund, at least once a year through independent valuer
The OCIF should acquire an interest in any real property only:-
a) if the real property is the subject of a report by a professionally qualified property valuer who is
independent of the manager and the trustee/custodian of the OCIF and who is also not connected
with the property or with any transaction relating to the property within the previous two months,
or with any person who holds an interest in the property;
b) if, in addition to stating the value of the property, the valuation report (see (a) above) includes
the valuer's professional opinion that if acquired for the OCIF, the interest in the property would
be capable of being disposed of reasonably expeditiously at the valuation;
c) the acquisition is completed within a reasonable period of time, this being (other than for
exceptional reason) usually within 6 months of the date of the valuation report;
The assets of a OCIF which comprise real property should be fully revalued at least once each
year in conjunction with the preparation of audited report and accounts and should be periodically
reviewed for the purposes of calculating the NAV in order to determine the Redemption and
Selling prices on each dealing day. Both the revaluation and the reviews should be performed by a
qualified property valuer.
Luxembourg The board of directors must appoint one or more independent property valuers with a specific
experience in the field of property valuation. The CSSF checks on the basis of a case by case
analysis the acceptability of the independent property experts within the framework of agreeing
the investment fund. Therefore the file introduced to the CSSF in the context of agreeing a real
estate investment fund has to give all the necessary information permitting the CSSF to judge the
acceptability of the independent property valuer.
At the end of the financial year, management must instruct the property valuer(s) to examine the
valuation of all properties owned by the UCI or by its affiliated real estate companies.
Mexico No specific secondary regulation has been issued.
Netherlands The fund is required to state in its prospectus how estimations of the value of the assets are made
and with what interval the estimations are based on real valuations by an independent valuer.
Most of the time an auditor will only approve the annual report if an independent valuer valued
the market price of the assets at the report date.
Ontario Independent valuation of the real estate assets is generally required annually.
Portugal The assets held by investment funds must be evaluated every two years by at least two
independent expert evaluators, and also under the following conditions:
a) Prior to their acquisition or disposal; b) Prior to the development of construction projects, in
order to determine the value of the property being built; c) Whenever any circumstances arise that
could lead to significant alterations to the value of the property.
Expert evaluators of real estate funds are subject to individual registration with CMVM. Expert
evaluators must use at least two of the following methods of valuation: a) The comparative
method; b) The yield method; c) The cost method.
Quebec Yes, the fund shall appoint one or more independent professional appraisers to appraise the
interest of the fund in the real property investments in its portfolio.
Spain Yes. At least once a year, and in any case, at the moment when the real estate assets are acquired,
contributed to the fund or sold (in this last case, if there is no valuation in the six months prior to
the sale date).
The process for valuation includes a “valuation calendar”, in order to avoid big fluctuations of the
NAV. An official, registered and supervised (by the Bank of Spain) real estate “valuer”, must do
the valuation report.
Other requirements apply to the valuer and to the content of the valuer´s report.

28
 Switzerland Yes. The management company and the SICAV appoint at least two natural persons or one legal
entity as valuation experts. The valuation experts should have the necessary qualifications, be
independent and be recognised by the supervisory authority.
Property which the management company or the SICAV wish to purchase or sell must be valued
by at least one valuation expert. The valuation expert has to inspect the property for this valuation.
The market value of the properties belonging to the real estate fund must be verified by the
valuation experts at the end of each financial year.
UK NURS: The scheme must appoint a valuer, who has to be independent from the scheme manager
and have experience in valuing immovables of the relevant kind in the relevant area. The
appointment must be approved by the scheme's trustee or depositary.
The fund manager must ensure that the standing independent valuer values all the immovables
held within the scheme property, on the basis of a full valuation with physical inspection
(including, where the immovable is or includes a building, internal inspection), at least once a
year. The last full valuation must then be reviewed on a monthly basis.
Any valuation of the standing independent valuer must be on the basis of an 'Open Market Value'
as defined in Practice Statement 3 in the Royal Institute of Chartered Surveyors' Appraisal and
Valuation Manual.

PAIFs: For PAIFs it is proposed that for each accounting period: assets must be valued in
accordance with generally accepted accounting practice, where generally accepted accounting
practice offers a choice of valuation between cost basis and fair value, fair value must be used,
and no account shall be taken of liabilities secured against or otherwise relating to assets (whether
generally or specifically).

REITs: Property investment companies must provide a summary valuation of its property
portfolio (the valuation must have been carried out by a third party). The valuation must be in
accordance with international accounting standards.
US SEC Publicly-offered real estate funds are required to file annual audited financial statements. The
values imposed upon the real estate assets are those that are required by the U.S. Generally
Accepted Accounting Principles (GAAP). In general, the real estate assets held by real estate
funds are valued at historical cost less accumulated depreciation.
Publicly-offered real estate funds may also elect to provide fair values in the footnotes to the
financial statements. Some real estate funds will base those values on appraisals conducted by
independent third parties. The real estate assets are not required to be fair valued, however, and an
independent appraiser is not required pursuant to federal law. In general, real estate funds that
provide these fair values value their assets quarterly.

6. Are estimations of the value between these independent valuations allowed? And to what extent must
purchase and sale transactions be carried out at the valuation price?

Member/
Jurisdiction
Australia There are no regulations in relation to estimations of value between formal valuations. There is no
direct regulation of prices for purchase and sale transactions by the responsible entity for a scheme
that invests in real estate.

However, the Act imposes duties on the responsible entity for any kind of scheme and these
include to act honestly and to act in the best interests of members of the scheme. Also, it is a
condition on all Australian Financial Services Licences, including those licences authorising a
responsible entity to operate a managed investment scheme that the licensee have in place
adequate arrangements to manage conflicts of interest.

ASIC expects managers to determine value on a reasonable basis. Where funds are open and
unlisted, such valuations are used to determine unit price.
Brazil An estimation between different valuations would be allowed as long as the criteria used for the
estimation are listed in detail in the valuation report and approved by the quota-holders in general

29
 assembly, according to what was described above.

Whenever a valuation is mandatory it must be used to determine the price of purchases and sales,
and also in the case of acquisition of quotas paying with assets described in the previous item.
France Yes. The OEREF’s net asset value is calculated on the basis of the property determined by the
experts. The management company is however allowed to deviate from such a value if there is a
justification.

In the case of property purchase and sale transactions, the OEREF is not bound by the property
value determined by the independent valuation agents. In any event, the OEREF’s property assets
will be valued (at market value) under the responsibility of the management company.
Germany The valuations of committee remain binding until replaced by another valuation at a further point
in time no later than one year after the previous valuation. The investment management company
may not substitute these fair market values assessed by the committee by estimations, but may ask
the committee – if appropriate – to revaluate a real estate property before 12 months have expired.
Real estate property may only be purchased if prior to the transaction an independent valuer not a
member of a valuation committee has assessed its fair market value and the transaction price does
not or only marginally exceed the assessed value.
On the other hand the sale of a real estate property is only permitted if the sale price does not fall
short of the fair market value last assessed by the valuation committee. If in the interest of the
investors of the fund, two or more real estate properties previously held by the fund may be
subject of one single sale transaction and the sale price in total may be as low as 95 % of the sum
of fair market values of the relevant real estate properties (portfolio discount).
Hong Kong The REIT Code does not prohibit estimates of value being made between the independent
valuations.

The transaction value or the sale/ purchase price of a property is a commercial decision. The REIT
Code does not prescribe how the sale/purchase price of a property to be sold/acquired is to be
determined, i.e. the sale/purchase price of a property may be at a discount or premium to its
valuation as commercially determined among the parties of the transaction. As such, so long as
the basis upon which the sale/purchase price of the property is determined and the value/valuation
report of the property to be sold/acquired as assessed by the principal valuer of the REIT are
clearly disclosed in the circular to unitholders, it would be the commercial decision of the REIT
manager, acting in the best interests of the REIT unitholders as a whole.
Ireland Before a real estate asset is acquired for the fund it must be valued. The valuation report must
confirm that if the asset was acquired it could be disposed of at that valuation within a reasonable
period. The real estate asset must be acquired within six months from the date of the report and at
a price which is within 5% of the valuation price. Derogations may be granted to professional
investor and qualifying investor funds to the extent that properties may be purchased within 10%
of the valuation price.
Italy The intervention of independent valuation is also invoked by the regulation in occasion of the sale
of real estate assets, when fund managers are required to confront the judgement of external
independent advisers in the process of making sure that the perspective deals will be executed at
fair prices.
Although equivalent provisions do not exist for the purchase of real estate assets from the funds,
except for the case of transactions that raise potential conflicts of interest (as better explained in
the response to question n.12), the market has autonomously fostered practices that lead to similar
results, as managers tend to consult independent advisers – and disclose their valuations to the
public - also before the acquisition of properties and not only before disinvestments.
However, it must be remarked that, on the contrary of the case of subscription through delivery of
real property and/or equity of real estate firms (see the answer to question n.1), where the
independent valuation concerning the goods brought to the funds serves as cap (upper bound) for
the value of the shares returned to investors, the valuations acquired (compulsorily or voluntarily)
from independent advisers in occasion of purchases or sales of real assets are not binding, as fund
managers can always carry out the transactions in contrast to the advice received if they can
provide reasonable motivations.
Japan Investment trusts, investment corporations, special purpose companies and special purpose trusts

30
 are obliged to examine the valuation of their assets by basing their examinations on valuation by
real estate appraisers, and it is required to disclose the results to investors.
There are no specific regulations for estimations of value among several independent valuations.

Although there are no specific regulations for the valuation method of the real estate syndication
business, real estate syndication are required to explain the transaction price of the assets, whether
valuation has been done by real estate appraisers or not, to investors before the conclusion of
contract with investors.

There are no specific regulations for partnership-type real estate fund on this point.
Jersey Independence, timing
Luxembourg Properties may not be acquired or sold unless they have been valued by the property valuer(s),
although a new valuation is unnecessary if the sale of the property takes place within six months
after the last valuation thereof.

Acquisition prices may not be noticeably higher, nor may sales prices be noticeably lower, than
the relevant valuation except in exceptional circumstances which are duly justified. In such case,
the managers must justify their decision in the next financial report.
Mexico No specific secondary regulation has been issued.
Netherlands Estimations of the value are allowed. The estimation method must be disclosed in the prospectus.
Ontario Every purchase and sale is generally required to be verified by an appraisal.
Portugal The valuation of the real estate assets is set up by the management company between the assets
purchase price and the arithmetic average of both experts’ valuation. It means that if the valuation
of one of the two experts is 100, the other expert’s valuation is 120 and the purchase price was 70,
the management company may (and must) set up the property valuation between 70 and 110 (110
being the 100/120 arithmetic average).
Quebec No, all properties within the real estate investment fund’s portfolio should be appraised once a
year.
Spain The value of the real estate asset assigned in the “valuer’s report, is the value used by the
management company to calculate the NAV of the real estate CIS, at which subscriptions and
redemptions are liquidated.
The management company may, with the consent of the “valuer”, apply an oscillation up to 3%
on the valuation of the report. This value may not exceed the market value included in that report.
Also, if the valuation report includes any conditionings, and till deficiencies are resolved, the
estimated value of the asset should be the lesser of that value or the last valuation without
conditionings.
Switzerland If the management company and the SICAV do not adopt the valuation experts’ valuation, they
have to explain this to the auditors.
UK NURS and PAIFs: As mentioned above, estimations are allowed – the independent valuer must
review the last full valuation on a monthly basis.
An immovable must not be bought for more than 105% of the valuation.
However, for PAIFs and NURS assets must be valued in accordance with generally accepted
accounting standards at each accounting period (i.e. at least once a year).

REITs: No, legislation states that valuations must be carried out in accordance with International
Accounting Standards.
US SEC Independent valuations are not required. If, however, a real estate fund provides them, estimations
between any independent valuations are permitted. Any independent valuation or estimation may
influence but does not govern the price at which a purchase or sale of property by the fund is
carried out.

31
7. What are the common problems with valuations?

Member/
Jurisdiction
Australia The most common problem with valuations is that they may not be done often enough. The law
requires that valuations should be done at periods that are appropriate to the asset that is being
valued, which could potentially be for example, three years, yearly, or six monthly. Best practice
would mean that it is important that the valuation be done as close as possible to striking a unit
price for the asset, which again, should be done as close as possible to the transaction time for the
investment.
There is also the potential issue of valuations that are not truly independent, affecting the price at
which investors transact with the asset.
As a separate matter, the quality of the valuation is also an issue – the true value of the asset can
only be determined when sold – valuations on property assets are dependent on what is happening
in the economy, as well as local issues arising where the property is located.
Brazil Problems with valuation are not common. That is because the valuation is merely used as a
referential for the decision making and deliberations of the investors in general assembly.
France As from today, the OEREFs legal regime has not known any valuation issues.
Germany While generally speaking assessment of fair market values by independent valuers has proven to
be effective in avoiding conflicts of interest on the side of the investment management company,
one may argue that more frequent valuations could further promote the trust put into the valuation
process on which the daily calculation of unit prices is based. However, it has to be taken into
account that valuations come at considerable costs for the fund. Furthermore regulatory practice
asks for the distribution of revaluation dates of the individual real estate properties of a fund
evenly over the course of the business year avoiding “leaps” of the unit prices which would occur
if all properties were reassessed on the very same day.
Hong Kong The SFC is not aware of any common problems with valuation so far.
Ireland Valuation issues have not arisen as such. However, the Irish investment fund industry consider
that the valuation rules, which require a physical examination, are too onerous even if this
particular requirement is moved to an annual basis. Proposals have been made to permit ‘desk top’
valuations and rely on the expertise of the valuer, who will act in accordance with industry
practice.
Italy See the answer to question n. 16 in the last section
Japan There are no problems with valuations.
Jersey
Luxembourg Valuations do not give a guarantee that a given price will be paid .
Mexico No specific secondary regulation has been issued.
Netherlands
Ontario Real estate is inherently difficult to value, as it is illiquid and valuation may be subjective.
Portugal The most relevant problems with valuation arise because of the too wide gap that may occur
between the purchase price and the experts’ average valuation. The possibility given by the law to
the manco to set up the asset’s valuation near to the purchase price or near to the experts valuation
price, according to the mancos interest on the NAV value, entails a significant risk of damage to
the investors in case of redemption/subscription of the units, allowing the units to be valued on the
basis of a unreal value of the fund’s assets, as also a serious lack of transparency and effectiveness
to the market.
Being aware of this risks, the CMVM is about to work on a Regulation’s amendment in order to
replace the existing valuation criteria by another criteria which may guarantee a higher level of
matching of the mancos valuation and the market price of the real estate assets of the fund.
Quebec For example, for a regular CIS redeemable each week, there could be a problem with the accuracy
of the value of the properties within the portfolio since it can vary significantly within a year if
some events occurred between two appraisals.
Spain A difference may exist, between the calculated value of the real estate asset and the effective
transactions price, due to the special characteristics of these assets.
Switzerland Generally speaking the system with the independent valuation experts has proved its worth. Only
one management company was confronted with severe valuation problems lately, while changing
the method of valuation for its real estate funds. During the last years most management

32
 companies introduced the so-called “Discounted Cash Flow Method” (DCF Method) which is the
most recognised dynamic valuation method in Switzerland. For some real estate funds the former
applied “Gross rental Method” showed higher valuations than the newly introduced DCF Method.
UK Common problems with valuations are that the real value of the property is largely due to market
sentiment and what another investor would pay for it. Therefore this can fluctuate depending on
market conditions. The aim of requiring a valuer independent of the manager and trustee is to
avoid the inherent conflicts of interest that can arise.
US SEC Real estate is difficult to value.

33
Liquidity of real estate fund shares / units

8. Are real estate funds permitted to be established as open-ended funds?

Member/
Jurisdiction
Australia An 'open-ended fund' is understood to be one:

where there are no limits set in the documents that constitute the fund as to the number of
investors, the number of properties in which the fund can invest or the duration of investments;
and
in relation to which an investor is able to redeem their interest at any time where the redemption
price is determined by dividing the total asset value of property and cash by the number of
interests.

There are no requirements in the Act in relation to the structure of managed investment schemes
that are established to invest in real estate. A scheme is free to be established as 'open-ended' or as
some other kind of fund.
Brazil No.
France Yes.
Germany The German Investment Act only provides for open-ended real estate investment funds. Closed-
ended real estate investment funds are not permitted.
Hong Kong REITs in Hong Kong have to be structured as closed-ended funds and listed and traded on the
SEHK.
Ireland Open-ended real estate funds will be considered if they can provide sufficient liquidity but this is
generally not the case.
Italy No, real estate funds domiciled in Italy can only be closed-end funds.

Japan Yes, however, all corporate type of investments that exist in Japan at present is closed-end type.
This is because if real estate investment companies would be established as the open-ended type,
they would have to sell the portfolio of real estates or keep the ration of liquid asset too high in
order to meet the investor’s redemption request.
Jersey Yes
Luxembourg Yes, real estate funds are permitted to be established as open-ended funds.
Mexico No specific secondary regulation has been issued.
Netherlands Real estate funds can be open ended or closed ended.
Ontario No – As noted earlier, there is only one surviving “legacy” open end real estate CIS in Canada.
Portugal Yes.
Quebec No, they are not permitted pursuant to Regulation 81-102 on Mutual Funds .
Spain Yes. See Q & A 1
Switzerland The answer is yes.
UK Yes, as explained above, as NURS
US SEC Yes.

9. Are there special rules to guarantee a certain minimum of liquidity?

Member/
Jurisdiction
Australia There are no special rules to guarantee any level of liquidity of a managed investment scheme,
including a scheme that invests in real estate.

However, the Act expressly regulates the redemption of interest in a managed investment scheme
of any kind, including a scheme that invests in real estate, where a scheme ceases to be 'liquid
scheme' ie if less than 80% of its assets are liquid. Briefly, in this case, a responsible entity is
prohibited from accepting redemption requests and may only redeem interests under a withdrawal

34
 offer made to all members of the scheme and where the available assets are applied
proportionately to fund the redemptions requested under the offer.
Brazil No.
France OEREFS have to determine and publish their net asset value (“NAV”) at least once every six
months and at most twice a month. The NAV needs to be calculated and published on the 30th day
of June and the 31st day of December of each year.
The full prospectus shall specify the periodicity pursuant to which the NAV is determined and
published, as well as the related schedule.
Once the NAV has been published, subscriptions and redemptions of units and shares in OEREFs
may only be carried out on the basis of this value, under the conditions set out in the prospectus.
The prospectus of the OEREFs shall indicate the maximum period between the date for
centralising subscription and redemption orders and the date of delivery or payment of the units or
shares by the depositary. This time lag shall not exceed six months.
Germany The investment management company has to assure that at least 5 % of the net asset value of the
real estate investment fund are held in assets that are available on a daily basis for payments to be
made on behalf of the fund.
Hong Kong Not applicable. All REITs are listed and traded on the SEHK.
Ireland Investment funds may only be considered open-ended where they permit unit holders to request
redemption of their units on at least a monthly basis for retail funds and on at least a quarterly
basis for professional and qualifying investor funds.
Italy No, there are no special rules to guarantee a certain minimum liquidity. See the answer to question
n.11
Japan No, there is no specific regulation.
Jersey Maximum levels of investment in immovables see 3a above
Luxembourg Yes, according to regulatory practice, the open real estate investment fund has to provide the
CSSF with information how this issue is dealt with in practice.
Mexico No specific secondary regulation has been issued.
Netherlands Open ended funds must ensure that they can buy back their shares when asked to by investors.
They should show the investors that they are able to do so.
Ontario No
Portugal There are no specific rules to guarantee a certain minimum of liquidity, but the legal framework is
globally conceived to allow a permanent minimum level of liquidity.
Quebec No
Spain Yes, investors must be allowed to subscribe or redeem their units at least once a year, although
CNMV may authorise, as an exception, a wider period for market reasons or to guarantee stability
of the fund, within the maximum of two years. It is a common practice though, that real estate
funds allow subscriptions every month and redemptions between two and four times a year.
The management company must calculate the NAV of the funds at least monthly.
NAV applicable for subscriptions and redemptions will be the first calculated after the investor
request. (at an unknown NAV).
All real estate CIS must have a minimum of 10% of its total assets invested in cash, bank deposits
or treasury short-term fixed income products, only in those moths where redemptions exist.
(“Liquidity coefficient”)
Switzerland The investors may request the redemption of their units at the end of a financial year observing a
notice period of twelve months. To equalize this situation the management company and the
SICAV must ensure that real estate fund units are regularly traded through a bank or a securities
dealer on a stock exchange or over the counter.
UK NURS and PAIFs: Open-ended authorised fund managers must be willing to deal in units at the
request of the investor unless limited redemption provisions apply. No specific limits apply to
liquidity. The manager must have adequate systems and controls.

REITs: For REITs a minimum number of shares must be kept in public hands (25%), and they
must be listed on a recognised stock exchange.
US SEC The real estate funds that are traded on national securities exchanges are often subject to the
minimum trading requirements imposed by those exchanges. For example, in order to maintain a
listing on the New York Stock Exchange, a real estate fund generally must have an average

35
 monthly trading volume of 100,000 shares.

For other real estate funds, there are no special rules to guarantee a certain minimum liquidity in
the shares that are imposed by federal law. Instead, real estate funds may provide their own means
of liquidity.

10. Are lock in periods allowed? Please describe the common practice.

Member/
Jurisdiction
Australia A lock in period is understood to be a set period of time during which investors cannot redeem
their interests in a fund. There are no regulations in relation to lock in periods for the redemption
of interests in a managed investment scheme, including a scheme that invests in real estate.

However, there is a general requirement for the constitution of any kind of scheme, including a
scheme that invests in real estate, that if there are any rights to withdraw from the scheme, these
rights and the procedures for dealing with withdrawal requests must be fair to all members.

It is common for there to be lock-in periods for unlisted direct property funds. An unlisted direct
real property fund may have lock-in periods for up to, for example, ten, fifteen or twenty years,
with rental income during the period, and the sale of the property at the end of the period.
Brazil There’s no prohibition, however, that practice is not common in the industry. Usually, the single
situation where lock up periods are used is when the fund wants to avoid the need of registering
for public offering of quotas. The investors, then, agree to a lock up period to permit that the fund
gets full operational before the public offering (ie, the assets were all acquired and are generating
income).
France No.
Germany Most recent amendments to the German Investment Act enable investment management
companies to limit the general right of the investor to have units redeemed on a daily basis. Thus,
in the fund rules it may be laid down that under certain circumstances redemptions can be as
infrequent as once a month and combined with advance notice periods of up to 12 months to be
regarded by investors wishing to be reimbursed for their units.
Prior to that some investment management companies have tried to encourage investors to stay
invested in a fund or give notice prior to a request for redemption of units by means of providing
for higher but degressive retainable amounts to be taken off when paying out on units surrendered
by investors and lowering or completely doing away with surcharges on the unit price asked when
issuing units to the investor.
Hong Kong The REIT Code does not prescribe any lock in periods.
Ireland Real estate funds which establish as limited liquidity funds may provide for lock in periods.
However it is up to each fund to determine its policy in this regard. Sufficient disclosure must be
made in the prospectus.
Italy The regulatory framework requires compulsory lock in periods only for the case of transactions
that raise issues due to potential conflicts of interest for fund management companies; these
circumstances are explained below in the response to question n 12.
As regards other lock-in agreements that may voluntarily emerge in the bargaining among
shareholders or between the funds and their shareholders, these generally regard professional
investors (especially those that have acquired their shares versus the delivery of real assets) and
occur in particular when the funds are issued with the perspective of being listed on a stock
exchange.
Japan No, there is no specific regulation.
Jersey Prospectus statements for sophisticated investor funds, no redemptions until fixed date, extended
notice periods
Luxembourg In principle lock in periods are allowed. The prospectus of the real estate fund has to give full
information in this respect. The prospectus has to point out the exact duration of the period during
which investors have to keep their assets in the fund.
Mexico No specific secondary regulation has been issued.

36
 Netherlands Lock in periods are allowed if stated in the prospectus, where also the precise criteria have to be
disclosed.
Ontario NA
Portugal The fund’s bylaws may establish any lock up periods. No legal restrictions apply
Quebec NA
Spain Only for in kind subscriptions the management company may establish a lock in period in the
rules and prospectus of the CIS.
Switzerland See above 9.
UK NURS rules do not allow for lock in periods per se, they do, however, provide for limited
redemptions.
The instrument constituting the scheme and the prospectus of a non-UCITS retail scheme that
invests substantially in immovables may provide for limited redemption arrangements appropriate
to its aims and objectives.
In these circumstances the scheme must provide for redemptions at least once every six months.

REITs are required to be listed on a recognised stock exchange, so trading in the company's shares
would generally be available.
US SEC Yes. This type of provision is typical among real estate funds that are not exchange-traded. The
registration statement for any publicly-offered real estate fund, however, would require disclosure
of any lock-in restrictions. Typically, real estate funds that provide redemption rights will not do
so until the shareholder holds the security for at least one year. After the one-year period, a charge
similar to a contingent deferred sales load may be imposed on any redemption for a period of
time, declining in amount after every year that the shareholder holds the shares.

11. What are the circumstances under which redemptions may be postponed?

Member/
Jurisdiction
Australia There are no regulations in relation to postponing the redemption of interests in a managed
investment scheme, including a scheme that invests in real estate.

However, there is a general requirement that the constitution of any kind of scheme, including a
scheme that invests in real estate, that if there are any rights to withdraw from the scheme these
rights and the procedures form making a dealing with withdrawal requests must be fair to all
members.

The Act also imposes duties on the responsible entity for any kind of scheme that apply to any
aspect of carrying out its duties or exercising its powers. These include to act honestly and to act
in the best interests of members of the scheme.

If redemptions may be postponed under the constitution of a managed investment scheme it will
be required to be disclosed to potential investors.
Brazil Redemptions of quotas are not possible as only closed ended funds are allowed. There may be
amortisation of quotas, if this possibility is allowed by the fund’s by-law.
France Redemptions may be postponed if a unitholder holds more than 20% of the units and requests
redemption of 2% of all his units.

More generally, redemption by the fund of its units or shares, and the issue of new units, may be
provisionally suspended by the management company, pursuant to the fund's regulations, in
exceptional circumstances and if the unitholders' interests require it.
OEREFs must indicate in their prospectus the circumstances under which redemptions may
temporarily be suspended. Only temporary suspensions may be provided for. The prospectus must
also provide that the AMF will be notified immediately of any suspension.
Germany Provided the fund rules contain a clause for postponement of redemptions of units the investment
management company may indeed postpone, i.e. temporarily halt redemptions when extraordinary
circumstances seem to make this measure appropriate with respect to the interest of the affected

37
 investors. While this measure is taken, the issuance of new units is generally not permitted; halt
and resumption of redemptions have to be indicated to the relevant Regulators (BaFin and those of
other host states in which distribution of the units also takes place) and is subject to a public
notice by the investment management company addressed to the investors of the relevant fund.
At any point in time BaFin can demand the postponement of redemptions when this is deemed a
necessary measure to protect the interest of the investors.
Hong Kong As REITs in Hong Kong are structured as closed-ended funds, unitholders have no right to request
for a redemption of their units.
Ireland All investment funds must list in their prospectus the circumstances under which redemptions may
temporarily be suspended and this will apply also to open-ended real estate funds. Only temporary
suspensions may be provided for. The prospectus must also provide that the Financial Regulator
will be notified immediately of any suspension.
Italy In general terms funds/fund management companies can always be authorized to suspend for a
short period redemptions if this is in the interests of investors, provided that particular and
unexpected events are striking the markets so much to make current prices, or estimates of current
prices, unreliable.
However, given the mandatory closed-end form that real estate funds must adopt, which consents
ongoing redemption of existing shares only at some predetermined dates and within the amount
raised through new subscriptions (with the addition of the debt margin as explained at point n.3),
liquidity problems are not likely to hit the funds over their life.
On the contrary, these issues may become relevant at maturity, when, in fact, the regulation allow
management companies to be authorized to extend the life of real estate funds up to a maximum
of three extra years to accommodate for averse liquidity conditions which may affect the sale of
the assets.
Japan Amendments of the trust deeds of investment trusts or articles of incorporation of investment
corporations are required.
Amendments of the securitization plan of special purpose companies or special purpose trusts is
required.
As for real estate syndication businesses, it is required that real estate syndication business
provisions have requirements and procedures concerning the postponing of the redemptions.
Jersey Recognized Fund, suspension of redemptions for 28 days (extension available) insufficient
liquid/near liquid assets to meet demand or likely demand for redemptions
OCIF Funds exceptional circumstances, having regard to the interests of holders
Luxembourg Should the investors have the right to present their securities for redemption, the UCI may provide
for certain restrictions hereto. In addition, where it is justified, notably with regard to a specific
investment policy, the real estate fund has the obligation to restrict such right of redemption.
These restrictions must be clearly and precisely described in the prospectus.

The real estate fund may inter alia provide for delays of payment in case it does not hold sufficient
liquid assets to immediately settle redemption requests.
Mexico No specific secondary regulation has been issued.
Netherlands The principle is that the prospectus discloses how the fund management will act in certain
situations. If an unforeseen scenario takes place, the fund should inform the regulator and propose
a solution that takes in account the interests of all investors.
Ontario Same as those for all conventional CIS (generally, if trading of more than 50% of the underlying
portfolio is suspended). They may also apply for regulatory approval to suspend redemptions in
extraordinary circumstances.
Portugal Whenever requests for repurchase of investment units exceed requests for subscription on a single
day by 5% of the total assets of the investment fund, or, in a period of no more than five
consecutive days, by 10% of the same set of assets, the management company is permitted to
suspend repurchase operations. The management company shall suspend repurchase operations or
issues whenever the interests of unit-holders make such action advisable.
Quebec Same as those for all conventional CIS (generally, if trading of more than 50% of the underlying
portfolio is suspended). They may also apply for regulatory approval to suspend redemptions in
extraordinary circumstances.
Spain Only temporally and as an exception, when redemptions exceed 10% of the NAV of the fund or
when Minister of Finance establish so, in order to ensure the management of the fund. In this case

38
 prorate redemptions should be executed for the 10% of the NAV. CNMV must authorise this
exceptions.
Switzerland The fund regulations may provide for the temporary and exceptional deferral of the repayment if:
a. a market that is the basis for the valuation of a significant part of the fund’s assets is closed or
the trading in such market is limited or suspended;
b. there is a political, economical, monetary or other emergency;
c. transactions for the collective investment scheme become inexecutable due to restrictions for
currency transfers or transfers of assets;
d. for numerous units termination notice is given and therefore the interests of the other investors
can be affected significantly.
UK NURS: If the fund has a daily valuation point, redemptions may be deferred to the next valuation
point where requested redemptions exceed 10%, or some other reasonable proportion disclosed in
the prospectus of the authorised fund's value.

PAIFs: In addition it is proposed for PAIFs that dealing in units can be suspended in
circumstances where a corporate body obtains beneficial ownership of 10% or more of the net
asset value of the fund.

REITs: REITs are required to be listed on a recognised stock exchange.

US SEC In certain instances, redemption rights may be postponed as described in the prospectus. These
redemption rights may be limited by factors such as a determination by the board of directors, in
its sole discretion: that such redemption would impair the capital or operations of the fund; that an
emergency makes such redemption not reasonably practical; that any governmental or regulatory
agency with jurisdiction over the fund demands so for the protection of shareholders; that such
redemption would be unlawful; that such redemption would cause the fund to fail to qualify as a
REIT under the Internal Revenue Code; and/or that a suspension of redemption would be in the
best interest of the fund.

12. How does the calculation of the relevant issuance and redemption price of the real estate fund shares /
units take place?

Member/
Jurisdiction
Australia The calculation of the issue and redemption price take place under the particular provisions of the
constitution of each managed investment scheme.

There is no requirement to use a particular method of calculation. There is a general requirement

that the constitution make "adequate provision" for this which ASIC administers to require that
the prices by "independently verifiable". This requires that the prices cannot be influenced by any
party that has an interest in the scheme, including the responsible entity or parties related to it.

However, ASIC has also permitted a range of other particular pricing methods for use in particular
circumstances, and has permitted the responsible entity to exercise influence over pricing through
the exercise of limited discretions consistent with commercial practices.
Brazil When the first issuance of quotas occurs the administrator of the fund is responsible for the
calculation. For following issuances the price must be approved by quota-holders in general
assembly.
France The NAV per unit or share which is calculated by the management company is based on the
market value of the investments less all the fund’s liabilities, divided by the number of units in
circulation. It shall take into account the valuation of the real estate by the independent experts
(please see answer to question 5).

Shares and units in OEREFs shall be issued at all times at the request of the holders on the basis
of the first net asset value determined after the cut off time for centralising subscription requests,
plus:
1° The variable portion of the subscription fees kept by the OEREFs (in order to cover the fees

39
 and taxes related to the buying and selling of the property assets);
2° Where applicable, the subscription fees.

OEREFs’ shares and units shall be redeemed at all times at the request of the holders on the basis
of the first net asset value determined after the cut off time for centralising redemption requests,
minus any applicable redemption fees.
Germany Unit pricing is generally obligatory on every stock exchange trading day in Germany; pricing is
voluntary on public holidays, Christmas Eve and New Year’s Eve.
Pricing is to be carried out either by the custodian (Depotbank – depositary bank) with assistance
of the management company or by the management company in its own responsibility.

By legal definition the fund unit price is the net asset value of the fund divided by the total
number of units issued and in circulation; the net asset value of the fund is to be calculated on the
basis of the relevant valuations for the assets of the fund from which all debt is to be set off.
Hong Kong The REIT Code does not prescribe how the issue price of the units of a REIT should be
determined. However, it requires that the trust deed of a REIT must specify the procedures that a
REIT should follow when new units are issued and the method of determining the issue price.
Ireland Normal rules applicable to all collective investment schemes apply and therefore issue and
redemption prices are based on the underlying net asset value of the portfolio.
Italy
Japan In general, issuance and redemption price is based on the amount that divided the total net assets
value by total number of shares/units at the beginning or the end of the fund. In addition, an issue
price may be determined by book-building method when it is listed on an exchange.
Jersey
Luxembourg The net asset value (NAV) per unit of each class shall be expressed in the relevant currency of
denomination of such units and shall be determined as at any valuation day by dividing (i) the net
assets of the fund attributable to each class of units, being the value of the portion of assets less
the portion of liabilities attributable to such class, on any such valuation day, by (ii) the number of
units in the relevant class then outstanding, in accordance with certain valuation rules.

Real estate will be valued by the independent appraiser. In respect of real estate assets, the real
estate fund may use the valuation established at the year end throughout the following year unless
there is a change in the general economic situation or in the condition of the properties which
requires new valuations to be carried out under the same conditions as the annual valuation.
The securities of real estate companies which are listed on a stock exchange or dealt in on another
regulated market will be valued on the basis of the last available publicised stock exchange or
market value.
The securities of real estate companies which are not listed on a stock exchange nor dealt in on
another regulated market will be valued on the basis of the probable net realisation value
estimated with prudence and in good faith.
The net asset value on which the issue and redemption prices of the securities are based must be
determined at least once a year, namely at the end of the financial year, as well as on each day on
which shares or units are issued or redeemed
Mexico No specific secondary regulation has been issued.
Netherlands The prospectus discloses how (and how often) the NAV is calculated and at what price (and
when) issuance and redemption can take place.
Ontario Real estate investments are valued at fair market value, and an independent appraisal would be the
best indicator of the fair market value. The value is normally verified further by the income
approach to value. The one Canadian real estate CIS currently calculates issue and redemption
prices twice per month.
Portugal The value of the unit is determined by dividing the net asset value of the fund by the number of
units in circulation and is calculated and published with reference to the last day of each month
and on all the days on which subscription and redemption transactions are permitted, in the latter
case, in accordance with the terms of the management rules and regulations.
Quebec In determining net asset value, the value of each real property may be determined by either of the
following methods (or by any other method acceptable to the AMF Quebec):
the value of a real property on any valuation date, if prior to the first appraisal, shall be the

40
 purchase price and thereafter the market value stated in the most recent appraisal report; or the
value of a real property upon any valuation date, if prior to the first appraisal, shall be the
purchase price and thereafter the market value stated in the most recent appraisal report and,
monthly thereafter until annual or interim reappraisal is obtained, shall be the amount determined
by computing the present value of the stabilized net operating income stream at a capitalization
rate acceptable in the market place at the time of valuation.
Spain NAV calculation of the CIS, takes into account the last value assigned by the valuer’s report.
Changes in the value assigned will be attributed in the month when valuation has taken place.
Switzerland The general rule for the calculation of the net asset value (nav) is applicable: The net asset value
per unit is based on the market value of the investments less all the fund’s liabilities, divided by
the number of units in circulation. Further the calculation of the nav must take into account taxes
(real estate tax and, if applicable, real estate transfer taxes) incurred in connection with any
liquidation of the real estate fund.
UK NURS and PAIFs: The price of a unit of any class is calculated by reference to the net value of the
scheme property after deducting any outstanding borrowings, whether immediately due to be
repaid or not and in accordance with the provisions of both the instrument constituting the scheme
and the prospectus.
Any unit price must be expressed in a form that is accurate to at least four significant figures.

REITs: The share price is dependent upon the supply and demand in the market.
US SEC For publicly-offered real estate funds that are not exchange-traded, but instead offer periodic
redemption rights, management often discloses that they will use the values calculated quarterly
or annually by a third-party independent appraiser. Publicly-offered, exchange-traded real estate
funds use these values often as an informal baseline for trades that occur on the open market.

13. If your jurisdiction provides for the authorisation of closed end real estate funds, are there any rules to
provide investors with an exit mechanism?

Member/
Jurisdiction
Australia A 'closed-end fund' is understood to be one in relation to which the number of interests issued in
the fund is limited, an investor is not able to redeem their interest but these interests can change
hands by trading on financial markets. A fund manager of a closed fund can assist members to by
and sell interests, however an exemption is usually required.

As noted above, there are no requirements in the Act in relation to the structure of managed
investment schemes that are established to invest in real estate. A scheme is free to be established
as 'closed-end' or as some other kind of fund.
Brazil There are no such rules. The exit is achieved only by selling the quotas at the stock exchange or
over-the-counter. In order to increase the liquidity of the quotas, there are intermediaries that act
as market makers, and there are specific rules stipulated by CVM for the provision of that service.
It is worth noting that in the prospectus of the public offerings of quotas of real estate funds, a
warning to the investors regarding the low liquidity of the quotas is mandatory.
France Not applicable.
Germany As already stated above, German Investment Act does not provide for the establishment of closed-
ended real estate investment funds. However, closed-ended structures investing in real estate
property are permissible under German Law and do exist in Germany. These cannot be qualified
as investment funds though, since they lack any kind of regulation with respect to diversification
of assets (“principle of risk-spreading”) and exit mechanisms for the investors.
Closed-ended funds are in Germany historically mainly structured as limited Partnerships and can
– amongst other assets – also invest in real estate property but seldom hold more than one real
estate property. Shares in limited partnerships do not constitute transferable securities and are
therefore not listed on stock exchanges.
German REITs under the most recently enacted German REIT Act are considered regular listed
stock companies that are merely governed by law for taxation purposes to acquire tax exempt
status. No provisions are in place in order to warrant any kind of protective investment regime for

41
 the investors of German REITs that go beyond the regular capital markets legislation which all
listed stock companies are subject to.
Hong Kong Unitholders are able to dispose of their units in the REIT through a sale of such units in the
secondary market of stock exchange. In the case of termination of the REIT, the proceeds of the
realisation of the real estate of the REIT, after paying all outstanding liabilities and providing
adequate provisions for liabilities, will be distributed to the unitholders proportionately to their
respective interests in the REIT at the date of termination of the REIT.
Ireland The real estate fund must have a finite closed-ended period, the duration of which must be
provided for in the fund rules and prospectus.

Accordingly, the disclosure must provide that on a specified future date the real estate fund will
undertake one of the following actions:
i) wind-up and apply for a revocation of authorisation;
ii) redeem all outstanding units and apply for a revocation of authorisation;
iii) convert into an open-ended investment fund, the relevant details of which must be
disclosed in the prospectus, or
iv) obtain unitholder approval to extend the closed-ended period for a further finite period.
Italy As for all closed-end funds, in case of public offerings whose minimum subscription amount is
lower than € 25.000, real estate funds must file for listing by a stock exchange.
Japan No, there is no specific regulation
Jersey If closed ended fund is listed but generally time horizon or at discretion of manager
Luxembourg The Luxembourg jurisdiction provides for the authorisation of closed end real estate funds. The
regulations do not provide investors with any specific exit mechanism but in practice exit
mechanisms often occur. The prospectus may provide the investors with different kinds of exit
mechanisms. Investors will achieve liquidity through one of the following forms of exit among
others: A listing on a stock exchange; The board of directors has the option to offer to all
unitholders the possibility to ask for the redemption of their units at NAV; An orderly disposal of
the portfolio (liquidation).
Mexico No specific secondary regulation has been issued.
Netherlands Closed ended real estate funds are allowed. If the prospectus does not introduce an exit possibility,
then the investor has to wait until the pre-defined end period of the investment. Some closed end
real estate funds are listed on the stock exchange, thus making possible an early exit (at a
questionable price...)
Ontario No
Portugal Closed-ended investment funds may have a determinate or indeterminate duration. For closed-
ended investment funds with a fixed duration, this must not exceed 10 years. However, the
duration may be extended once or twice, for periods not greater than the initial duration, provided
that authorisation is granted by CMVM and that the assembly of shareholders votes in favour of
this, and the management rules and regulations permits the redemption of investment units by
unit-holders who declare themselves, in writing, to be opposed to such an extension. Closed-
ended investment funds with an indeterminate duration shall only be authorised if the
management rules and regulations provides for the admission to trading on a regulated market of
the fund’s investment units.
Quebec There are no rules or regulations providing investors with an exit mechanism. The investor should
refer to the offering document.
Spain No, there are no special rules.
Switzerland There are no special rules containing an exit mechanism for closed-ended real estate funds.
UK Closed-end funds as such are not authorized by the FSA.
US SEC NA.

42
Conflicts of interest

14. Does the law in your jurisdiction provide for a code of conduct for management companies? Is there a
corporate governance code or similar?

Member/
Jurisdiction
Australia The Australian jurisdiction does not provide for a code in relation to the governance of managed
investment schemes. The approach is rather to impose general obligations.

The Act imposes duties on the responsible entity for any kind of scheme that apply to any aspect
of carrying out its duties or exercising its powers. These include to act honestly and to act in the
best interests of members of the scheme.

It is a condition on all Australian Financial Services Licences, including those licences authorising
a responsible entity to operate a managed investment scheme, that the licensee have in place
adequate arrangements to manage conflicts of interest.
Brazil CVM Instructions expressly determines a number of rules concerning obligations, responsibilities,
and prohibitions applicable to funds’ administrator.
France Yes. The general rules under French law which are applicable to the management companies of
collective investment schemes will likewise apply.

It is noteworthy that French law provides for specific rules on conflicts of interest which are
applicable to collective investment schemes, whether traditional ones or OEREFs. Pursuant to
such rules, the management company is required to establish and maintain an effective conflict of
interest policy which shall be set out in writing. This policy shall also be appropriate according to
its size and organisation and to the nature, scale and complexity of its business.

The detailed conditions for such conflicts of interests rules are provided in the AMF’s General
Regulation.
Germany General rules of conduct for management companies as well as their duties with respect to their
organisational structure are established. Inter alia management companies are legally obliged to a
conduct of business in the exclusive interest of their investors and market integrity while conflicts
of interest have to be reduced to a minimum and where unavoidable solved with due respect for
the interest of their investors. The organisational structure of a management company has to be as
such that the risk of potential conflicts of interest arising between management company and
investors, between investors, between investors and funds or between funds is kept as low as
possible.

The representative association for the German investment management industry (BVI
Bundesverband Deutscher Investment-Gesellschaften e.V.) has come up with a corporate
governance code for its members transferring the general legal obligations in more detailed and
specific guidelines.
Hong Kong REIT managers have to be licensed by the SFC. As such, they have to observe the applicable
codes of conduct applicable to licensed corporations issued by the SFC from time to time
including the Fund Manager Code of Conduct.

REIT managers are also required to observe the REIT Code. The REIT Code contains a number of
safeguards to deal with possible conflicts of interest between the REIT manager (being a
“connected person” of the REIT within the meaning of the REIT Code) and unitholders.

The trustee of a REIT has the obligation to, among other things, take all reasonable care to ensure
that all transactions carried out by or on behalf of a REIT are conducted at arms length and that
connected party transactions are carried out in accordance with the relevant requirements under
the REIT Code.
Connected party transactions are subject to announcement, reporting and independent unitholders’
approval unless they are exempted under the REIT Code or a waiver is granted.

43
 The REIT manager is also required to include measures in its Compliance Manual to avoid and
manage potential and actual conflict of interest relating to the REIT.
Ireland There is no specific code of conduct.
Italy
Japan Yes, there are regulations on the conduct of financial instruments businesses as asset management
company.
Jersey Fund Services Businesses Codes of Practice
Luxembourg No the Luxembourg jurisdiction does not provide for such a code of conduct. The general rules
deriving from company law with respect to the responsibility of the board of directors apply.
Mexico
Netherlands There is no specific code of conduct, although the basic principle “to act in the best interest of the
investors” helps the regulator. Funds should disclose structural situations with a possible conflict
of interests in their prospectus and/or annual report.
Recently the representative association of the Dutch fund industry (DUFAS) has launched a set of
fund governance principles that give funds some more guidance on this.
Ontario Every CIS manager is subject to a statutory fiduciary duty to the funds it manages. Management
companies, that are not advisors, are considered market participants who are subject to regulatory
standards, including compliance audits. There is a proposed rule to register all fund management
companies.
There is also a rule requiring each CIS to have an independent review committee to oversee
conflict of interest issues relating to the conduct of the CIS management company.
Portugal There is a Corporate Governance Code, which entails CMVM non binding recommendatory rules
about the corporate governance of listed companies, that only applies to listed management
companies.
The Investment Management Companies Association has a Code of Conduct which applies to the
associated management companies.
Conflicts of interest are regulated by art. 25 of DL 60/2002, which states that management
companies must act in the sole interest of unit-holders, when representing the management
company itself or companies which it controls or is in a group relationship with. It’s also stated
that whenever a management company manages more than one investment fund, it shall consider
each one as a client, with a view to preventing conflicts of interests, and, if these are inevitable,
they shall be resolved in accordance with principles of equity and non-discrimination.
Moreover, the acquisition from and disposal of property to a large range of entities which are
somehow related to the management company depend on authorisation by CMVM of the petition
made by the management company.
Quebec For all CIS, the Regulation respecting the Independent Review Committee applies (“IRC”). The
role of the IRC is to review all situations of conflict of interest with the management companies.
Depending on the situation, they have to approve or give a recommendation on the conflict of
interest situation and report to unitholders and to the AMF-Quebec.

Article 109 of the Quebec Securities Act states that : An investment fund manager shall, in the
interest of the fund and its beneficiaries or the fulfilment of its purpose, exercise prudence,
diligence and skill, and discharge its functions with honesty and loyalty and in good faith
Spain All the asset management companies must have a Code of conduct. INVERCO (the Industry
Association) has elaborated a model and the majority of asset management companies have
adhered to it. There must be an independent committee made up either by members of the Board
or by an internal department of the asset management company. This independent committee must
check that those trades creating a conflict of interest comply with the internal procedure included
in the code of conduct.

Also in the CIS RD there are the following provisions in order to prevent conflicts of interest:

The partners, unit holders or the fund are allowed to rent the assets or any other right derived of
those asset of the fund, only if the situation do not generate a conflict of interest and transactions
are done at market prices. Information must be provided to investors in these cases, in the rules of
the fund and also at the annual report.
The fund may acquire properties from other company belonging to the same group or to the

44
 management company group, if those properties are new constructions, and under certain
requirements, and with the limit of 25% of the NAV of the fund.
The real estate funds are not allowed to sell or rent its assets to related persons or companies
belonging to the same group or its management company group.
Switzerland The holders of an authorization and their delegates have to satisfy in particular the duty of loyalty,
the duty of diligence and the duty of information. The supervisory authority may determine codes
of conduct of representative industry associations as minimum standard.

The supervisory authority determined the code of conduct of the Swiss Funds Association SFA as
minimum standard in the year 2000. Due to the new legislation this code is currently under
review.
UK Yes. The rules set out expected standards.
US SEC No.

15. Is the management company allowed to sell its own property to the fund?

Member/
Jurisdiction
Australia There are no regulations that deal directly with the sale of property of the responsible entity for a
managed investment scheme into the scheme's assets.

However, the Act imposes general requirements in relation to related party transactions and the
giving of a financial benefit out of the assets of a managed investment scheme to the responsible
entity of a scheme, or to related parties of the responsible entity. Generally, such benefits will only
be possible after member approval, unless the benefit falls within specific exceptions.

One such exception is that member approval is not required to give a financial benefit on terms
where the parties are dealing at arm's length or where the terms are more favourable to the scheme
than the related party.
Brazil No, according to the CVM rules that is forbidden, because of its inherent conflict of interest.
France Yes. However, in this case, conflict of interest rules applicable to collective investment will apply
(please see answer to question 14).
Germany Generally speaking the sale of property already belonging to the investment management
company to a real estate investment fund is not permitted.
Hong Kong A REIT manager may sell its own property to the fund provided that the requirements in the REIT
Code in relation to connected party transactions are satisfied. Please refer to the answer to Q.14.
Ireland In principal yes, but such related party transactions are subject to certain conditions:
The transaction must be carried out as if effected on normal commercial terms negotiated at arms
length; transactions must be in the best interest of unit holders.
Transactions permitted are subject to:
(i) certified valuation by a person approved by the trustee as independent and competent; or
(ii) execution on best terms on organised investment exchanges under their rules; or
(iii) where (i) and (ii) are not practical, execution on terms which the trustee is satisfied conform
with the principle outlined in paragraph 1.
Where such transactions are envisaged there must be full disclosure in the prospectus.
Italy Yes, real estate funds are allowed to invest in assets purchased, or received in payment for new
shares, by the management companies or by their group members and shareholders. Similarly,
real estate funds are also allowed to sell their assets to the same entities.
In any case, the aforementioned transactions can be executed only under the following conditions:
each individual asset acquired or sold by the fund cannot be worth more than 10% of the fund’s
net asset value. The total of such deals must not exceed 40% of fund’s net asset value as long as
only management company’s shareholders are concerned, and 60% of the net asset value
including transactions with the management company’s group members;
if the transactions take place after the initial offering is concluded, these must not exceed, on the
overall, 10% of fund’s net asset value per year;
the assets sold or purchased by the funds must be subject to valuation from independent advisers;

45
 this requirements holds to a greater extent - as the estimates become binding – for the assets which
are delivered to the funds as payment for new shares (check answer to question n.1);
at least 30% of the shares acquired in return of the delivery real assets to the funds must be kept
by the aforementioned investors for a minimum of 2 years (lock-in period);
the financial intermediary in charge of checking the consistency of the fund’s investment strategy
with the real estate assets received in payment of new shares must not be part of the same group of
the company which originate the assets;
the board of the management company must release an statement which clarifies about the interest
of the existing (incumbent) shareholders in the transaction; the statement must be agreed upon by
the management company auditors.
In any case, no such operations are allowed if carried out with managers, directors or auditors of
the fund management companies. Moreover, as all other types of funds, real estate funds cannot
invest in the securities issued from their management companies.
Japan Regarding investment trusts and investment corporations based on the Investment Trusts Law, the
asset management companies are not allowed to sell their own property to the fund.
Jersey Arm’s length /best execution
Luxembourg Yes, the management company is in principle allowed to sell its own property to the fund.
Properties may not be acquired or sold unless they have been valued by the property valuer(s).
Moreover, acquisition prices may not be noticeably higher, nor sales prices noticeably lower, that
the relevant valuation except in exceptional circumstances which are duly justified. In such case,
the managers must justify their decision in the next financial report.
Mexico No specific secondary regulation has been issued.
Netherlands Related party transactions are allowed, but must be fully disclosed along with evidence that
ensures the acting in the best interest of the investors.
Ontario Generally, related party transactions between a fund and its manager are prohibited.
Portugal Yes, provided the CMVM gives previous authorisation for the acquisition and that doesn’t
configure any conflict of interest.
Quebec Generally, related party transactions between a fund and its manager are prohibited.
Spain See Q & A 14.
Switzerland No. As a general rule the holders of an authorization and their delegates may acquire investments
from the collective investment schemes for their own account only at market price and sell their
investments from own portfolios only at market price (art. 31 CISO). Further art. 63 CISA
stipulates for real estate funds only: The fund management company, custodian bank and their
delegates, as well as closely connected natural and legal persons, may not acquire real estate
assets from real estate funds or assign any such assets to them. A SICAV may not acquire any real
estate assets from the company shareholders, their delegates or closely connected natural and legal
persons, nor may it assign such assets to them.
Due to the fact that for property there only exist market valuations but no strict market prices the
mentioned prohibition is justified. There is no other way to deal with this inherent conflict of
interest.
UK NURS and PAIFs
Yes, provided it meets best execution on exchange, it is independently valued or meets arm's
length requirements.

REITs
Yes, but this does not count towards the minimum holding of three properties.
US SEC Yes. Publicly-offered real estate funds must, however, describe any transaction since the
beginning of the fiscal year that the real estate fund was, or is a participant in, that exceeds
$120,000 and in which a related person had or will have a direct or indirect material interest.
Certain information about such transactions must be disclosed, including:

the names of the related persons and the basis on which the person is related; the related persons
interest in the transaction (including the related person’s position or relationship within an entity
that is a party to the transaction); the approximate dollar value of the amount involved in the
transaction; the approximate dollar value of the amount of the related person’s interest in the
transaction; in the case of indebtedness - the largest aggregate amount of principal outstanding
during the period for which disclosure is provided; the amount outstanding as of the latest

46
practicable date; the amount of principal paid during the periods for which disclosure is provided,
the amount of interest paid during the period for which disclosure is provided; and the rate or
amount of the interest; any other material information.

In addition, any policies with respect to the review, approval and ratification of such related party
transactions should be disclosed.

47
Independent Oversight Entity

16. Is there an independent entity involved to manage inter alia possible conflicts of interest between
management company and investor?

Member/
Jurisdiction
Australia There is no independent entity involved to manage conflicts of interest at the primary decision
making or operational level of a scheme, although one may become involved as a result of
complaints by members of the scheme.

The responsible entity for a scheme is solely responsible for of all aspects of the operation of the
scheme. The Act expressly requires that the general duties of the responsible entity to the
scheme's members and in relation to the scheme overrides any conflicting duty of an officer or
employee of the responsible entity. The Australian financial services licence required to be held
by the responsible entity for a scheme requires that it have an internal dispute resolution system to
properly consider complaints by the members of the scheme against the responsible entity.

The Australian financial services licence required to be held by the responsible entity for a scheme
also requires that it be a member of an external dispute resolution body, to which members of the
scheme can complain about the decisions made by the responsible entity.
Brazil No. The supervision is made by CVM that, according to Federal Law number 8.668, has
administrative powers to check that conflicts of interest are mitigated and to punish those involved
in transactions under these circumstances.
France Yes, usually the OEREF’s supervisory board will be involved.

Moreover, each OEREF must appoint a depositary which is responsible for overseeing the
management of the OEREF in the same way as for traditional collective investment schemes.
Germany The investment management company has to appoint an independent custodian (Depotbank –
depositary bank) that acts as a safe-keeper for the assets of an investment fund. The custodian
issues and redeems the units on behalf of the investment management company and is involved in
the calculation of the unit prices on a daily basis, either directly or solely in the role of custodian
(see above).
Bank accounts and securities portfolios of the fund are generally kept by the custodian;
transactions of amounts on accounts at other credit institutions are subject to the approval of the
custodian. According to the German Investment Act the custodian exercises control over the
conduct of the investment management company with respect to the investment fund; many
transactions are subject to prior approval of the custodian.
The custodian is also obliged to claim for possible damages on behalf of the investors directed at
the investment management company based on misconduct or to initiate court procedures in
relation to third party with reference to claims concerning the property of the investment fund.
Hong Kong Please refer to the answer to Q.14.
Ireland Yes - real estate funds must appoint a trustee / custodian who is responsible for overseeing the
management of the real estate fund in the same way as other collective investment schemes. There
is no specific requirement in relation to conflicts of interest. The prospectus of each real estate
fund should contain a description of the potential conflicts of interest which could arise between
the management company, general partner and investment adviser and the fund, with details,
where applicable, of how these are going to be resolved. All conflicts of interest should be
resolved fairly.
Italy The regulation does not predict that any third independent entity should be involved in the
management of conflicts of interests. On the contrary, the general rules of business conduct
concerning investment funds require that the management companies adopt themselves specific
procedures, whose major features are disclosed to investors, in order to prevent, identify and
manage conflicts of interests.
However, having regard to the practices that tend to prevail in the market, it must be noted that:
management companies from medium to large size are generally inclined to hire independent
managers (which fulfill the “independence” requirements referred to in the overview section) that

48
 are assigned responsibility for monitoring potential conflicts of interest which may affect
investments or other business operations. The presence of such officers within the companies’
boards is envisaged by the code of business conduct issued from the industry association, in
addition of being highly recommended by supervisory Authorities;
funds bylaws often include provisions that require the specific and expressed consensus of the
fund’s shareholders assembly before the management company can execute transactions in a
situation of potential conflict of interests.
Japan No, there is no such entity.
Jersey Independent Valuation process as above
Independent roles of depositary for Recognized Funds and custodian/trustee for OCIF funds
Luxembourg Yes, the offering documents of many funds provide for a unitholder advisory committee
comprised of independent members and members of the promoter/initiator. Generally the offering
document provides for the appointment and term of the independent members.
In case the offering documents of the real estate fund provide for a unitholder advisory committee,
this unitholder advisory committee is in principle required to approve the proposed decisions of
the managers of the fund prior to such decisions being finally adopted by the management
company or for resolutions tabled by independent members at meetings of the unitholder advisory
committee.
The offering documents provide for a series of proposals of the management company where the
approval of the unitholder advisory committee is required, i.e. any decision to terminate the
investment management agreement, other than automatic termination and any decision with
respect to all related party transactions, including, without limitation, any distribution of
distribution facilities of the fund in connection with the winding-up of the fund to the
promoter/initiator or a promoter/initiator related party.
Mexico No specific secondary regulation has been issued.
Netherlands No. Although the recently introduced Fund Governance principles of the Dutch fund industry ask
for some sort of independent oversight function. Most larger fund companies have already
established this oversight function themselves.
Ontario Every public CIS is required to have an independent review committee to oversee conflicts of
interest.
Portugal The CMVM has supervisory attributions over the management company, and may suspend its
activity, prohibit any actions involving conflicts of interest or even remove its license to operate
as a manco whenever the manco’s action may be considered as a breach of fiduciary or legal
duties.
Quebec For all CIS, the Regulation respecting the Independent Review Committee applies (“IRC”). The
role of the IRC is to review all situations of conflict of interest with the management companies.
Depending on the situation, they have to approve or give a recommendation on the conflict of
interest situation and report to unitholders and to the AMF-Quebec.
Spain Yes. Real estate funds must have a depositary entity, which’s functions are similar to regular CIS:
vigilance and supervision of the management company and custody of the assets and cash of the
fund. Particularly, and among others, in relation with: Supervision of acquisitions and sales of the
assets of the fund; Supervision of the NAV calculation; Supervision of the compliance of the rules
affecting the investments and financing of these funds.

Also see Q & A 14.

Switzerland No. According to the Swiss legislation the checks and balances are realized trough a “teamwork”
of the management company or the SICAV, the custodian bank, the auditor and the supervisory
authority (supervisory authority) and - in the case of real estate funds - the valuation experts.
UK NURS have a trustee or depositary who provides independent oversight of the investment
manager.

REITs are required to have a Board of Directors who are able to act independently of the
investment manager.
US SEC Exchange-traded real estate funds are often required to have a majority of directors be
independent of management as required by the national securities exchange upon which it is
traded. The New York Stock Exchange and NASDAQ exchange rules also require fully
independent audit, nominating and compensation board committees.

49
17. If applicable: What legal and regulatory status does the independent entity have in your jurisdiction?

Member/
Jurisdiction
Australia The external dispute resolution bodies to which the responsible entity for a scheme must belong
are established as private concerns and operate under a general ASIC approval. The responsible
entity for a managed investment scheme must continue to satisfy the requirement that it be a
member of an external dispute resolution body to be able to legally operate the scheme.
Brazil Not applicable.
France As regards contractual funds, the AMF’s General Regulation provides for specific provisions in
this respect and in particular:
- Members of the supervisory board shall be elected by and among the unitholders;
- Board membership shall be incompatible with the performance of any other function likely to
give rise to a conflict of interest;
- Unitholders shall elect the members of the supervisory board in accordance with the procedures
specified in the fund’s rules;
- Elections of the members of the supervisory board shall be held at least once every three years.
More detailed rules are provided by the AMF’s General Regulation.

As regards investment companies with variable capital, the corporate legal regime pertaining to
supervisory boards will apply.

As regards the funds’ depositaries, they must comply with the criteria set out in the French
Financial and Monetary Code and the AMF’s General Regulation. Depositaries generally are
banks or subsidiaries of banks and are governed by the rules found in the French Financial and
Monetary Code.
Germany The custodian has to have the status of a credit institution. The custodian is thus also subject to
supervision by the Regulator (BaFin).
Hong Kong Trustees of REITs in Hong Kong have to be either a licensed bank, a trust company which is a
subsidiary of such a bank or a banking institution or trust company incorporated outside Hong
Kong which is acceptable to the SFC. Although these trustees do not have to be licensed by the
SFC, they must be acceptable to the SFC and satisfy the criteria for their acceptability set out in
the REIT Code.
Ireland A trustee /custodian must meet with criteria set down by the Financial Regulator. They are
generally banks or subsidiaries of banks and are subject to regulation under the Irish collective
investment scheme legislation referred to in question 1 above.
Italy
Japan N/A
Jersey
Luxembourg Not applicable.
Mexico
Netherlands Not applicable
Ontario Every investment fund is legally required to have an independent review committee (IRC) which
meets certain requirements. An IRC considers and makes recommendations about conflict of
interest issues. Its recommendations and the management company’s decision may be publicly
disclosed.
Portugal The CMVM is an independent and autonomous regulatory and supervisory entity for the capital
market.
Quebec The IRC is an entity that is required pursuant to Regulation 81-107. All mutual funds being
reporting issuers in Canada must have an IRC with procedure and policies as prescribed by this
Regulation. An IRC considers and makes recommendations about conflict of interest issues. Its
recommendations and the management company’s decision may be publicly disclosed.
Spain Functions developed by the depositary of the CIS are regulatory established.
Switzerland -

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UK NURS and PAIFs – trustee / depositary – authorised by the FSA

REITs – independent Board of Directors, elected by the shareholders.

US SEC The independent entity will typically be constituted as a board of directors or a board of trustees.
Directors and trustees have fiduciary duties pursuant to state laws to always act in the best
interests of the real estate fund and its shareholders.

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Title / legal ownership structure with respect to the real estate property

18. How and in what name are the assets of the real estate funds held and registered?

Member/
Jurisdiction
Australia Generally, the assets of any kind of managed investment scheme, including a scheme that invest
in real estate, may be held by: the responsible entity; a custodian under a formal arrangement; or
members of the scheme.

Scheme property arrangements sets out minimum standards for the responsible entity or custodian
for holding scheme assets. Conditions imposed on the Australian financial services licence held
by the responsible entity for a scheme also set minimum requirements for arrangements entered
into by the responsible entity with any other person in relation to custody of scheme assets.

There is no requirement that scheme assets, including assets of a scheme that invests in real estate,
must be registered in the name of the responsible entity for the scheme.
Brazil According to Federal Law 8.668, the assets are acquired by the institution that administer the real
estate funds, and kept under the fiduciary ownership of this institution (trustee).
France The assets of an OEREF are normally registered in the name of its management company. Having
said that, the register must expressly indicate that the assets are held by the management company
in the name of the OEREF which is the effective owner.
Germany The real estate property of a real estate investment fund is held by the investment management
company as legal property and registered under its name in the land register.
Hong Kong The assets of a REIT are held by its trustee and the trustee has the fiduciary duty to hold the assets
of the REIT in trust for the benefit of the unitholders.
Ireland The assets of Irish investment funds are generally registered in the name of the trustee / custodian
or a sub-custodian. However, the Financial Regulator accepts that there are difficulties in applying
this principle to real estate assets (e.g. trustee liability issues). The assets may be registered in the
name of the investment fund, or in the name of its wholly owned subsidiary, subject to the
following conditions:

A restriction is placed on the registered title of the real estate asset to the effect that title
cannot be disposed of without the prior consent of the trustee;
Where this is not possible, a caution is registered on the title to put prospective purchasers on
notice that the prior consent of the trustee is required for sale of the asset;
Where neither of the above is possible, the real estate fund will undertake, through a
provision in the custodian contract, that it will not invest in real estate assets unless the trustee
is satisfied that that the asset cannot be disposed of without its prior consent or that
arrangements equivalent to those set out in (i) and (ii) are in place.
Italy According to the Italian legislation fund management companies carry out transactions on behalf
of their funds acting with powers of attorney. However, assets, and to a greater extent real estate
assets, are always held and registered in the funds’ name (segregation principle).
Japan As for actual real estates, it is registered by the name of the fund.
As for securities on trusts, it is registered by the name of the trustee.
Jersey Recognized Fund the depositary or its delegate
OCIF fund custodian/trustee or delegate
Luxembourg The assets of the real estate funds are registered in the name of the UCI.
A custodian bank assures the safekeeping in due form of the documents of title of the real estate
the UCI is investing in.
Mexico
Netherlands The assets of a real estate fund are held and registered in the name of the fund.
Ontario Real properties are held and registered in the name of the fund.
Portugal The fund´s assets are held and registered in the name of the fund.
Quebec As for mutual funds, the real estate fund’s assets must be registered with a custodian in the name
of the trustees if the fund is a trust… If the fund is a corporation, the assets are held under the

52
 name of the fund.
Spain The financial assets of the real estate funds are held in the Depositary and non financial assets are
registered in the Property Register under the name of the real estate fund
Switzerland In the case of contractual investment funds the assets of the real estate fund normally are
registered in the name of the management company with the note that the assets belong to the real
estate fund. Assets of real estate funds in the form of a SICAV shall be registered in the SICAV’s
name.
UK The assets of the real estate funds are held and registered in the name of the real estate fund itself.
US SEC In general, real estate funds own their assets directly. Some real estate funds use a partnership to
hold their assets indirectly. Typically, these funds act as general partner and majority owner of the
partnership.

19. If the assets are not held and registered in the name of the real estate fund what legal safeguards are in
place to protect the investor (with respect to a land register or similar if applicable in your jurisdiction)?

Member/
Jurisdiction
Australia If the assets are not held and registered in the name of the responsible entity of the managed
investment scheme the responsible entity may seek to protect its position through lodging a record
of its interest in the property with the relevant land registration authority.
Brazil The Law determines that the assets kept under fiduciary ownership do not communicate with the
assets of the administrator of the fund, ie, there must be a clear and formal segregation of the
assets. The property’s official records must mention that it belongs to the real estate fund.
France Please see answer to question 18.
Germany By entry in the German land register indicating a restraint of disposal for the investment
management company – relevant German real estate property can only be disposed of subject to
approval of the custodian of the investment fund – it is thus obvious to the parties involved in the
transaction intended that the real estate property is held on behalf of an investment fund
respectively its investors.

Where foreign jurisdictions do not provide for a land register or such a mechanism, for the
purpose of safeguarding foreign real estate property of a German real estate investment fund, the
German Investment Act demands for a restraint to the same effect by other means in line with the
foreign jurisdiction.
Hong Kong Assets of a REIT are held and registered in the name of the trustee or the special purpose vehicle
controlled (directly or indirectly) by the trustee in trust for the benefit of the unitholders.
Ireland See response to question 18
Italy
Japan N/A
Jersey
Luxembourg Not applicable.
Mexico
Netherlands Not applicable
Ontario N/A
Portugal Not applicable.
Quebec As mentioned in the preceding answer, the fund assets must be registered with a custodian in the
name of the trustees if the fund is a trust… If the fund is a corporation, the assets are held under
the name of the fund.. Consequently, there is no safeguard of this type in the securities
regulations. Furthermore, all applicable provisions of the Civil Code of Quebec apply to Trusts
and Corporations holding assets on behalf of investors.
Spain N/A
Switzerland See above 18.
UK N/A
US SEC State land recording statutes provide such protections.

53
20. Are real estate funds permitted to establish and hold shares in corporate vehicles for custody purposes
or for the purpose of holding and acquiring real estate property indirectly and if so how are these structures
organised?

Member/
Jurisdiction
Australia A managed investment scheme if free to either invest in real estate by directly acquiring and
selling real estate, or by investing in other schemes that invest directly in real estate.

However, if a managed investment scheme invests in another scheme that itself invests directly in
real property, the assets of the first scheme are the securities of the second scheme. That is, the
first scheme is not investing in direct real property. Generally, this will change the conditions on
the Australian financial services licence required by the responsible entity to operate the first
scheme to reflect the nature of those types of assets.
Brazil According to the current rules, that kind of investment is not allowed. In the proposed rules the
indirect ownership of real property is to be admitted by acquisition of securities issued by public
companies, of quotas of FIP (Private Equity funds regulated by CVM), and quotas of other real
estate funds.
France Please see answers to questions 3.a and 3.g.
Germany In order to facilitate investments inter alia in foreign real estate property indirect investments by
means of holdings of shares in corporate vehicles is allowed.
Hong Kong A REIT may hold real estate through special purpose vehicles if the spv’s are legally and
beneficially owned by the REIT; the REIT having majority ownership and control of the special
purpose vehicles; the special purpose vehicles are incorporated in jurisdictions with established
law and corporate governance standards commensurable with those observed by companies
incorporated in Hong Kong; the board of directors of such special purpose vehicles shall be
appointed by the trustee of the REIT; and the REIT and the special purpose vehicles shall appoint
the same auditor and adopt the same accounting principles and policies.
Ireland Special Purpose Vehicles (“SPV”) may be established by real estate funds through which the
underlying real estate assets may be registered and held. In the case of retail funds only one
‘layer’ of SPV is permitted. In the case of professional and qualifying investor funds multi layers
are permitted but under strict conditions, comparable to those in Hong Kong.
Italy
Japan In regards to the regulations, it is possible, buts rarely seen.
Jersey Yes, Funds targeted at sophisticated/expert investors
Luxembourg Real estate funds are not permitted to establish and hold shares in corporate vehicles for custody
purposes but it is allowed for the purpose of holding and acquiring real estate property indirectly.
These structures are organised as subsidiaries under the general law applicable to companies.
Mexico No specific secondary regulation has been issued.
Netherlands There is no regulation that prohibits a real estate fund to invest in other funds or companies, as
long as the current investment policy is in line with what is set out in the prospectus.
Ontario Yes. The real estate fund is permitted to establish and hold shares in corporate vehicles for
indirect investment in real estate. There is no particular rule as to how these structures are
organized. The real estate fund generally ensures that it can exit the investment in the corporate
vehicles as and when necessary.
Portugal Real estate funds are allowed to hold shares in real estate companies.
Quebec Yes, the real estate fund is permitted to establish and hold shares in corporate vehicles for indirect
investment in real estate. No particular rules as to how these structures are organized.
Spain This can only be done trough a company traded in a secondary market for that part not invested in
real estate assets
Switzerland See above 3.a.
UK Yes. NURS are permitted to hold interests in non-UK real estate via a corporate vehicle. These
schemes invest in property, which is held by an intermediate holding company (otherwise known
as a special purpose vehicle or SPV) or indirectly by a local holding company which may be
based in the country of the property. These holding companies, when included at both levels of

54
 the structure, are themselves wholly owned by the scheme and merely act as a channel for
transferring capital and income.

The FSA has provided additional guidance for managers explaining the requirements when
making use of this structure. This includes control over the decision making process of all SPVs
involved in the structure, and the ability of the SPV to issue debt within the scheme for the
purpose of transferring capital and repatriating income. In particular, the authorised fund manager
should ‘look through’ to the immovables themselves for the purpose of complying with
investment limits. A statement must be included in the instrument constituting the scheme which
describes any use of intermediate holding companies that may be established solely to help with
the holding of the immovables.
US SEC See response to Question 18.

55
Problems

21. Have real estate funds in your jurisdiction given rise to any regulatory concerns or required specific
regulatory actions? If so can you (a) describe the problem(s); and (b) outline how this was addressed?

Member/
Jurisdiction
Australia There are some developments in property schemes in Australia that remain ongoing regulatory
challenges.

Infrastructure schemes that are also property schemes are raising interesting regulatory issues,
challenging the assumption that it is best for investors that the entity that sets up the scheme
should be controlling the scheme.

For example, some infrastructure investments are set up by an entity or entities, and then
controlled by a consortium of five. There is an argument that it may not be in the best interests of
investors for the responsible entity to be one in a consortium of five, however, there is a counter
argument that this is potentially a good performing investment for investors, and appropriate for
them whether or not the responsible entity has full control.

Issues may also arise around pricing where the assets of the scheme are mixed. Some assets may
be direct property, which is inherently an illiquid investment and difficult to value, some assets
are unlisted property securities, which may also be difficult to value, and other assets may be
listed property securities, which are generally liquid and easier to value. Depending on the
proportions of the different types of assets it may be appropriate to consider whther the fund can
value and hence price frequently on a reasonable basis. If not, the fund may be better structured as
a closed fund.
Brazil A while ago quotas of real estate funds were being sold by real estate brokers, as they were in
direct contact with investors prone to invest in real estate. CVM has then acted, through on-site
inspections in the points of sale and accusation of the brokers for acting illegally in the securities
market. After these events, some brokers registered with CVM to act as securities agents, linked
to a financial institution, to be able to participate of public offerings of the real estate funds’
quotas.
Other cases, less relevant, have happened and led to enforcement action by CVM because of
operations made under conflicts of interest, such as operations made between the fund and its
administrator, lack of disclosure of required information, offerings of unauthorised funds, etc. The
penalties varied from warnings and fines up to temporary suspension of the institutions or
professionals from the market.
France No.
Germany No. Most recent amendments to the German Investment Act give the investment management
companies more flexibility with respect to permissible investments (such as indirect investments
in real estate property) while demanding for a sophisticated risk management system facilitating
inter alia the liquidity management of the funds.
Hong Kong No, but keep a close watch
Ireland Issues remain under review. These include, for example, the extent to which these funds should be
permitted to invest in development assets and the valuation issue outlined in question 6 above.
Italy Yes, the issues focus on two areas:
the valuation process of real estate assets
Here the variability of the hypothesis underlying the estimation methods, which is often observed
not only in the overall market but also at the level of single fund ( the issue of time inconsistency
of the valuation assumptions), risks to undermine the reliability of the entire valuation process,
adding instead of solving uncertainty
the governance of asset management companies
The issues concerning governance become particularly crucial when some market events tress the
lack of independence throughout the industry. This could for instance be the case of the launch of
takeover bids on listed funds, when the relationship between the governance of the management
companies and the influence that is exerted by the shareholders appears particularly crucial for the

56
 outcome of the offers.
Japan No, there are no special concerns.
Jersey
Luxembourg (a) The regulatory concern is about open ended real estate funds, as there may occur a lack of
liquidity in the sense that open ended real estate funds risk to not hold sufficient liquid assets to be
able to settle redemption requests.

(b) The regulatory practice is that the open-ended real estate funds have either to manage the
liquidity of the real estate segments the fund is investing in, or to decide that the real estate fund is
investing a certain amount of its assets in cash, in money market instruments and/or listed
transferable securities. The funds have to provide information to the CSSF in this respect.
Mexico No
Netherlands In general the real estate business in the Netherlands has seen a more than average number of
scandals and integrity problems. Until now the effect of that on regulated real estate funds is
minimal.
Ontario In the past, there have been other real estate funds in Canada, but these have all terminated except
for one. Direct investment in real estate was prohibited when the market conditions for these types
of funds were unfavourable (for example, following a general “crash” of the real estate market),
making the liquidity of these types of funds a key regulatory concern.
Portugal The most relevant concerns raised by the real estate funds’ regulation are related with the
valuation issue, as described above under (7). The supervisory body (CMVM) has been becoming
more aware of the risks entailed and is trying to act informally over those mancos which clearly
manipulate the valuation prices between the gap allowed by the law, recommending them not to
set up the price far from the experts’ valuations and requiring them to explain thevaluations prices
when any abnormal deviation from the experts’ valuations is noted..
Due to the awareness of the problems risen by the legal valuation criteria, an amendment process
is being launched.
Quebec The Canadian Securities Administrators have had much discussion on the subject of real estate
investment funds and they came to the conclusion that this type of fund was not compatible with
traditional CIS. Quebec repealed its regulation on real estate investment funds in February 2008.
.
Due to the nature of real estate investment funds, there is a risk of liquidity problems and a
potential inability to meet massive or substantial redemption requests.

There is also a problem with the appraisal of the properties in the portfolios of such a fund. Given
that in Canada, Regulation 81-106 Respecting Continuous Disclosure of Investment Funds
requires the calculation of the net asset value of investment funds at least once a week, it is
problematic to calculate the net asset value at any given point for these funds.

In the past, there was also a problem of conflict of interest with this type of fund. For example, an
investment fund carrying out property transactions with the promoter of the fund.
Spain There have not been problems or specific actions in this regard.
Switzerland Yes, some minor violations of legal provisions as well as of fund regulations.
UK Many UK retail investors have been attracted to property funds in light of poorer stock market
returns and there is a risk that they do not fully understand the nature of the investment that they
have made.

Recent market turmoil has resulted in significant outflows from property based collective
investment schemes. Regulatory concerns have arisen with regards to suspensions and redemption
provisions.

The FSA is also consulting on allowing a 'fair value' valuations for immovables. This flexibility
may be desirable for daily dealing funds which only receive a valuation for the underlying
property on a monthly basis.
US SEC No. The SEC has not experienced any systemic problems with real estate funds.

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