Central Europe may be in for a tough ride if the German federal government's proposed changes to the country's investment law get the green light in June, according to Pavel Schanka, head of CEE Capital Markets at CBRE.
Central Europe may be in for a tough ride if the German federal government's proposed changes to the country's investment law get the green light in June, according to Pavel Schanka, head of CEE Capital Markets at CBRE.
'There have been quite a number of large transactions closed over the past couple of months, and potentially there could be much more ahead. However, the future will largely depend on the outcome of the new legislation for German open-ended funds, which today represent a considerable share of the Central European investment market,' he says.
German investors have been driving the market over the past years, representing up to 25% of total investment across Central Europe during the past three years. In the first quarter of 2010, German open-ended funds were behind the majority of large transactions, including Union Investment's acquisition of Horizon Plaza and SEB's acquisition of Trinity Park III for EUR 93 mln.
The German government's proposal to introduce a 10% writedown on valuations over a five-year period as well as the compulsory redemption notice on all capital withdrawals, have sparked a new wave of withdrawals across the sector and fears that there may be worse ahead. The German government is considering proposals which would compel investors to hold their units in the funds for at least two years, and extend the waiting periods for redemptions.
As a result, the future of the CE market is looking uncertain again. 'Yields may start to come under pressure in the second part of the year but again it depends on what will happen with the German open-ended funds. We probably should expect more off-market offerings as investors prefer to test the waters in uncertain times,' Schanka concludes.