Opinion of the European Central Bank of 13 September 2001 at the request of the Austrian Ministry of Finance on a draft federal law concerning real estate funds (Real Estate Investment Fund Act  ImmoInvFG) and to amend the Banking Act, the 1993 Investment Fund Act, the Money Market Act, the Securities Regulation Act, the Insurance Regulation Act, the Pension Fund Act, the Finance Market Regulator Act, the Income Tax Act, the Corporation Tax Act and the Federal Law establishing a Federal Pension Fund Public Limited Company [Bundespensionskasse AG] (CON/2001/24)
Date: 2001-09-13
Institutions: European Central Bank
Subjects: Austria, financial stability, financial supervision, investment, investment company, national law, real property

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 13 September 2001

at the request of the Austrian Ministry of Finance on a draft federal law concerning real estate

funds (Real Estate Investment Fund Act – ImmoInvFG) and to amend the Banking Act, the

1993 Investment Fund Act, the Money Market Act, the Securities Regulation Act, the Insurance

Regulation Act, the Pension Fund Act, the Finance Market Regulator Act, the Income Tax Act,

the Corporation Tax Act and the Federal Law establishing a Federal Pension Fund Public

Limited Company [Bundespensionskasse AG]

(CON/2001/24)

1.  On 30 July 2001 the European Central Bank (ECB) received a request from the Austrian Ministry

of  Finance  for  an  opinion  on  a  draft  federal  law  concerning  real  estate  funds  (Real  Estate

Investment Fund Act – ImmoInvFG) and to amend the Banking  Act,  the  1993  Investment  Fund

Act,  the  Money  Market  Act,  the  Securities  Regulation  Act,  the  Insurance  Regulation  Act,  the

Pension Fund Act, the Finance Market Regulator Act, the Income Tax Act, the Corporation Tax

Act  and  the  Federal  Law  establishing  a  Federal  Pension  Fund  Public  Limited  Company

(Bundespensionskasse AG) (hereinafter referred to as the “draft law”).

2.  The ECB’s competence to deliver an opinion is based on the second indent of Article 105(4) of

the Treaty establishing the European Community, the second indent of Article 4(a) of the Statute

of the European System of Central Banks and of the European Central Bank and the fifth indent

of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the ECB by
national  authorities  regarding  draft  legislative  provisions1,  as  the  legislative  proposal  contains
rules  applicable  to  financial  institutions  which  materially  influence  the  stability  of  financial

institutions  and  markets.  The  Governing  Council  of  the  ECB  has  adopted  this  opinion  in

accordance with the first sentence of Article 17.5 of the Rules of Procedure of the ECB.

3.  The main features of the draft law are:

(i)

that the issue and administration of  real  estate  funds  represent  a  bank  transaction,  and  are

therefore subject to prudential supervision;

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OJ L 189, 3.7.1998, p. 42.

                                                          
(ii)

that the valuation of property in real estate funds will be undertaken at least once a year by

two independent experts;

(iii) the establishment of statutory minimum spread requirements for individual funds;

(iv)  the requirement of involvement by a deposit bank (“Depotbank”) and the establishment of

insolvency protection measures in favour of investors.

The explanatory memorandum to the draft law notes that the rapid advance of foreign real estate

funds  on  the  Austrian  market  requires  the  introduction  of  an  Austrian  Real  Estate  Investment

Fund Act and a number of accompanying amendments. The intention of the Amendment to the

1993 Investment Fund Act and the Amendment to the Money Market Act is to treat foreign real

estate  funds  as  equivalent  to  all  other  foreign  investment  funds  in  terms  of  public  sales  in

Austria.  The  investment  rules  will  extend  to  Austrian  real  estate  funds  that  are  currently

regulated by the Amendments to the Insurance Regulation Act and the Pension Fund Act.

4.  The ECB welcomes the draft law as it establishes a regulatory framework to supervise Austrian

Real Estate Investment Funds with particular attention paid to  achieving the level playing field by

harmonising  the  regulation  of  investment  funds.  Another  item  worth  particular  attention  is  the

forward-looking  perspective  of  the  draft  law  as  it  aims  to  address  future  capital  flows  due  to

pension provisions. Specifically, the intention of the draft law is to ensure secure long-term high

yield  investment  opportunities  also  for  investors  with  limited  funds.  Finally,  the  draft  law

recognises the close relationship between banks and investment funds by particularly highlighting

the role of the deposit bank in Article 35. 

5.  The ECB would like to highlight the fact that investment funds may face liquidity shortages, even

when  they  are  considered  solvent,  in  cases  where  long-term  investments  are  illiquid  while  the

funding  is  potentially  of  shorter  maturity.  Investments  in  real  estate  assets  can  generally  be

considered  as  long  term  and  illiquid.  Furthermore,  Article  11  of  the  draft  law  provides  for  the

possibility that the share certificates may be returned to the fund for redemption of the share at the

request of the shareholder. Consequently, this concern may materialise for individual real estate

investment  funds.  The  ECB  recognises  that  Article  32  of  the  draft  law  expressly  addresses

concerns over liquidity and also provides for a temporary waiver of the investor’s payment of the

redemption price under extenuating circumstances in Article 11. Nevertheless, as a limit on this

waiver  to  one  year  (or  to  two  years  where  foreseen  by  the  fund’s  rules)  is  also  implemented,

liquidity  shortage  may  arise  in  extreme  circumstances.  As  the  real  estate  sector  has  been  the

source of instability in many countries, the ECB would like to emphasise that supervision should

continue to focus on liquidity issues. In the implementation of the law, supervisors should actively

monitor the funds’ liquidity.

Furthermore, the ECB would like to draw attention to the possible impact on asset prices of the

expected capital inflows from investors into the real estate sector through real estate investment

funds. As the reaction of the supply-side tends to be sluggish in the real estate sector, an increase

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in  demand  may  predominantly  influence  prices  and  also  increase  price  volatility.  Furthermore,

the  determination  of  asset  value  may  be  of  particular  concern  as  the  valuation  of  the  share

certificate will mostly not be verifiable by market prices. Article 29 of the draft law provides for

the appointment of at least two suitable experts for the valuation of the fund’s assets. Thus, the

ECB  would  recommend  that  supervisors,  in  implementing  the  law,  focus  their  attention

particularly  on  price  development  in  those  assets  that  are  eligible  for  investment  under

Article 21.

6.  The ECB notes that the continuous monitoring of business conduct by deposit banks is to become

mandatory.  The  ECB  welcomes  the  supervision  of  companies  investing  in  real  estate  by  the

financial markets supervisory authority (Finanzmarktaufsichtsbehörde). 

7.  The ECB notes that the draft law aims, inter alia, at facilitating the management of: (i) real estate

funds  for  the  public  at  large;  and  (ii)  the  management  of  special  real  estate  funds  for  major

investors  who  are  not  natural  persons  by  Austrian  real  estate  companies  (which  must  pay

particular attention to the protection of the interests of the investors).

8.  The  ECB  notes  that  the  draft  law  defines    “real  estate  fund”  and  “real  estate  investment

companies”.  The  ECB  welcomes  the  detailed  provisions  on  liability  conditions,  the  mandatory

involvement  of  a  deposit  bank,  the  winding  up  of  real  estate  funds,  property  companies,  the

valuation of assets, risk spread, liquidity provisions and derivative products in the draft law.

9.  The  ECB  welcomes  criminal  law  provisions  in  the  draft  law,  which  are  similar  to  those  of  the

Investment Fund Act, with the intention of creating an efficient tool guaranteeing adherence to the

provisions  of  the  draft  law.  In  this  context,  the  draft  law  also  imposes  fines  for  deposit  banks

violating the rules laid down in the draft law.

10.  The ECB recommends that the draft law expressly acknowledge that the reporting obligations it

imposes  do  not  prejudice  any  statistical  reporting  requirements  imposed  by  the  ECB  on  the

entities  subject  to  the  draft  law  in  accordance  with  Article  2  of  Council  Regulation  (EC)  No

2533/98  of  23  November  1998  concerning  the  collection  of  statistical  information  by  the

European Central Bank.

11.  The  ECB  confirms  that  it  has  no  objection  to  the  publication  of  this  opinion  by  the  competent

national authorities.

Done at Frankfurt am Main on 13 September 2001.

The President of the ECB

[signed]

Willem F. DUISENBERG

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