Nearly half of the additional costs of complying with the Alternative Investment Fund Managers Directive (AIFMD) will be passed onto investors, according to INREV.

The European Association for Investors in Non-Listed Real Estate Vehicles said 35% of fund managers it surveyed would absorb all of the additional costs, while 22.6% would pass all costs onto their investors. The remaining respondents planned to share the costs.

A weighted average showed that real estate fund managers would absorb 55.6% of additional costs, with the remaining 44.4% falling onto investors.

Among managers that planned to pass costs onto investors, two rationales were given. “Some stated that investors had simply not objected to the costs being passed on to them, while the other group stated that investors were aware that the costs were related to AIFMD compliance, they understood and supported the steps required, and that they were willing to pay for the compliance,” the report said.

INREV said there is no consensus on whether AIFMD has made the EU more or less attractive as the trade-off between increased market access and added regulatory burdens remains the subject of “lively debate” within the industry.

More than 26% believe that Europe has become more attractive as investors gain a sense of security resulting from the regulation and that investor confidence has increased. At the same time, 31.6% of respondents felt that Europe has become less attractive due to added costs of regulatory compliance.

The cost of AIFMD is considered a “significant burden” for real estate fund managers, according to the survey. The European Association for Investors in Non-Listed Real Estate Vehicles said 78% of managers it surveyed felt the cost of AIFMD compliance was a hindrance, although not “prohibitive”.

The industry body said AIFMD raises questions about how non-listed real estate sector been affected by regulatory compliance.

Depositary and operational requirements remain the biggest challenges, INREV said. The industry, it said, is “continuing to adapt” to AIFMD and EMIR requirements.

INREV also asked respondents for their views on European Market Infrastructure Regulation (EMIR), which aims for stability and increased transparency in the over-the-counter derivatives market. The costs of EMIR are regarded as insignificant, it found.

Despite the challenges, fund launches have not been hampered, INREV said, with almost 95% of respondents not seriously considering re-domiciling outside the EU.

“Although not all organisations surveyed are required to comply with the new regulations, nearly all have teams of employees following the evolution of and, in most cases, implementing the directives’ requirements,” INREV said.

AIFMD appears to generate the largest compliance efforts, the industry body said.

INREV said there are differences regarding “preparedness for reactions to the new regulatory environment”.

Its survey, however, found that fund managers are more confident about complying with EU regulations and are continuing to rapidly adapt to the new regulatory requirements.

INREV said more than 54.1% of those surveyed submitted their applications for AIFMD authorisation more than four months ahead of the final deadline.