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The current investment climate is not positive for Hungarian real estate funds, even though the local property market was untouched by the American real estate and mortgage crisis. Yields of domestic funds were relatively stable over the past one-three years, usually between 6-8 percent per year, and this is not expected to change much in the near future either. At the same time, Hungarian bond market yields have risen drastically in recent weeks, in the first half of April for example the State Treasury was offering two-threeyear bonds to household investors at a yield of 8.0-8.5 percent, while dealer banks and brokerages were offering the same product at a 9.0-9.2 percent annual yield for large investors.
So there is nothing wrong with funds themselves, they are quietly moving along, but in the meantime the competition has gotten stronger, so an investment in these instruments is not really recommended at present. In some cases, even taking out existing assets could be considered, at least if this does not come with a considerable cost. (At several funds, buying back investment coupons held for more than a year is free of charge.) It seems that some investors have already noticed this, as property funds have failed to grow signifi cantly in any month since the 2006 interest tax rush, and there have even been many months when investors took out capital from funds.
Most recently, for example, 8.5 billion forints were taken out in March, which is not a lot compared to the total capital of some 600 billion forints - and it was even partly offset by achieved yields -, but it is worth considering what would happen of this became a regular trend. Real estate is not something that can be sold quickly, and if the fund runs out of money it may have trouble repaying its investors. But right now we are far from this. The fi rst and probably most important thing protecting investors is that the ratio of properties in funds, at least the larger ones, is still not too high, sometimes even less than 50 percent.
On the one hand this holds back yields, because the money held in treasury bills brings less (at least so far it did) than rents from properties. But on the other hand, it is very favourable from a security point of view, because if investors were to rush to get their money back, the onslaught would be manageable for a long time. The property ratios at smaller funds of a few billion forints are probably higher, but the size of the properties in these funds is smaller, therefore they would be easier to sell in case of a need for capital.
Funds can also take out loans on the properties they own, and many have already taken advantage of this option, at least for a part of their portfolio. (The reasoning behind this is that the loans, taken out in foreign currencies at low interest rates, are placed into higher-yielding treasury bills. Also, funds' revenues are often in euros, so the loans act as a kind of "natural hedge.") The laws regulating funds also allow them to temporarily take out loans to pay back their investors. Probably not many people know this, but if by chance none of these methods prove suffi cient, the payback of investment coupons in the case of real estate funds can also be suspended for as much as six months. But we are very far from this at present.
