Real estate funds under pressure: New law for more security and transparency!

Real estate funds under pressure: New law for more security and transparency!

Closed real estate funds, which have been classified as closed real estate public AIF since July 2013, offer investors an opportunity to indirectly invest in real estate. Due to the regulation in the Capital Investment Code, which came into effect twelve years ago, these funds have developed from a “grey” to a “white” financing instrument. Such funds may only be launched and managed by capital management companies (KVG) that are supervised by BaFin. External custodians, such as custodian banks or notaries, ensure that the KVG is monitored accordingly and assets are stored securely.

The requirements for risk and liquidity management are strictly regulated. Investors generally have to expect capital to be tied up for at least ten years. Analyst Stephanie Lebert from Scope emphasizes that this regulation has largely been successful. She describes regulations on borrowing, currency risk and risk mix as significant progress. However, investors in these funds are not without risk: they become co-entrepreneurs and should find out about the performance track record of the providers in order to make an informed decision.

Current market developments and trends

According to the latest information, eleven new real estate funds with a planned equity volume of around 384 million euros were approved by BaFin in 2024. This represents the lowest new supply in this asset class, which is attributed to strong competition from fixed income investments and a difficult situation in the real estate market. In fact, the lowest transaction volume for commercial real estate in Germany since 2009 was recorded in the first half of 2025.

Of the approved funds, four invest in the USA and seven in Germany, with different types of use such as retail properties, senior properties and office properties. The typical distribution yields are closer to four percent than five percent p.a. However, Lebert sees opportunities to acquire properties at attractive prices, especially in the residential and food retail sectors. Analyst Stefan Loipfinger adds that the time of purchase is crucial for the performance of the fund properties.

Planned regulation and consumer protection

The uncertainty of many private investors regarding real estate funds has also brought the federal government into action. She is planning legislation to increase transparency and security in closed-end real estate funds. The Federal Cabinet has approved a draft for new regulations that are intended to provide unregulated closed-end funds with a transparent set of rules. The fundamental goals of this legislation are to reduce transaction costs, make valuation procedures more transparent and limit borrowing to 30%.

Consumer advocates are also calling for more transparency, particularly with regard to the costs that may arise when switching securities. These transaction costs are often borne by investors and can reduce returns in the long term. The independence of the assessors is also considered central to investor protection, as current legal regulations often do not allow external assessments. Lebert and Loipfinger both emphasize how important it is that future regulations are able to guarantee investor protection while at the same time enabling meaningful participation in closed-end real estate funds.