The introduction Real Estate Investment Trusts (REITs) to the Serbian real estate market holds significant promise, offering a substantial boost to investments while enhancing the marketโs depth and sophistication.
The broader ambition of establishing a Pan-European REIT market requires the creation of REITs in numerous European countries, Serbia included. Historically, REITs have demonstrated potential for long-term capital appreciation, often matching or exceeding inflation rates, making them a compelling investment vehicle.
REITs originated in the United States with the Real Estate Investment Trust Act of 1960, designed to facilitate “mutual investing” in real estate. This structure allows small investors to own shares in a large, diversified portfolio of properties, benefiting from corporate protections without the burden of corporate taxes. The REIT industry saw remarkable growth between 1968 and 1972, with assets increasing from $1 billion to $14 billion.
Europe witnessed its first REIT in the Netherlands in 1969, followed by Belgium in 1995. The concept expanded to the UK, Germany, and Italy in 2007, and to Spain and Finland in 2009. REITs are now also present in France, Bulgaria, Ireland, and other countries.
In Serbia, the first alternative investment fund (AIF) for real estate was licensed at the end of 2022. This AIF can invest up to 70% in real estate-related assets, with the remaining 30% allocated to other asset types. Investors can participate by purchasing investment units with a minimum value of EUR 50,000.
These funds are closed-end, privately offered, and have a predetermined number of investment units that are not freely transferable or redeemable. Annual returns can reach up to 8.5%, depending on the property type and associated risks. Besides dividends, investors benefit from property value appreciation and certain tax advantages.
According to Serbian law, a closed-ended real estate AIF, subject to private placement, may invest in various types of real estate both domestically and internationally, including:
- Residential and/or commercial buildings.
- Development land where construction is underway, expected to be completed within two years.
- Undeveloped land zoned for residential or commercial construction.
- Agricultural land.
- Additionally, investments can be made in:
- Equity/shares in companies that focus on real estate transactions and management.
- Shares of other real estate AIFs.
- Transferable securities or derivatives linked to real estate prices.
These properties can be acquired directly or through special purpose vehicles (SPVs) wholly owned by the AIF, aimed at managing the real estate on its behalf.
The future development of this market segment in Serbia hinges on addressing tax issues and increasing awareness about this investment opportunity. While Serbians traditionally favor direct real estate investments, there is a need to educate them about the benefits of investing in real estate funds. Building trust in these funds is essential. Additionally, the current lack of tax incentives for companies to invest in real estate funds must be addressed to foster market growth.
The introduction of REITs in Serbia represents a significant step towards modernizing the real estate market, offering diversified investment opportunities and contributing to the overall economic growth of the country.
Article by Miljan Pavloviฤ, ย Serbia, Danos, International Property Consultants & Valuers
