Luxembourg is currently ranked as the second most favoured domicile for real estate vehicles worldwide. Luxembourg is also the leading domicile for real estate funds with cross-border investments.
Luxembourg’s strong position has been established thanks to its wide offering of EU-compliant investment vehicles available for real estate investments and, more specifically, by its new investment vehicle that was legislated in 2007: the Specialized Investment Fund (SIF).
Types of investment vehicles used for real estate structures in Luxembourg
1. Luxembourg regulated real estate investment vehicles
Luxembourg´s most frequently used regulated investment vehicles (under the supervision of the Luxembourg regulator, the CSSF) available for real estate funds are the following :
- the SIF, under the law of 13 February 2007;
- the Part II Fund, under the law of 17 December 2010 (which supersedes the law of 20 December 2002);
- the SICAR, under the law of 15 June 2004.
2. Luxembourg unregulated real estate investment vehicles
The most common unregulated real estate investment vehicles are the S.A. (public company limited by shares) and the S.à r.l. (private limited company) falling into the “SOPARFI” category as it is called in Luxembourg.
Focus on the Specialized Investment Fund (“SIF”)
The SIF law, published in 2007, has been a huge success and has eclipsed Part II funds as the favourite investment vehicle for real estate funds. The reason for its popularity with real estate fund promoters is that the SIF offers a regulated structure in Luxembourg with lighter CSSF supervision than what is required for Part II funds, and a much-appreciated flexibility as far as investment policy and investment restrictions are concerned.
The growth in the number of SIFs and their net assets under management amongst real estate funds in Luxembourg (as reported by the ALFI Luxembourg real estate investment funds survey published in September 2010) demonstrates the increasing success and prevalence of this legal form. This trend is illustrated in the following charts.
Luxembourg real estate investment funds split by legal form (source: ALFI September 2010 survey) are as follows:
New challenges arise mainly from the regulatory side.
The most recent challenge for the SIF is to adapt to the requirements of the Alternative Investment Fund Managers’ Directive (“AIFMD”) which is to be adopted by all EU Member States by July 2013. To this end, the Conseil de Gouvernement adopted the draft law on 1 July 2011, to align the SIF law (SIFs and their managers) with some of the requirements introduced by the AIFMD, such as enhanced provisions relating to delegation, conflict-of-interest management, authorization and supervision (SIFs will need to be authorized by the CSSF before commencing their activities and will be under increased supervision), as well as the authorization of individuals managing SIFs in order to ensure their integrity and competence
Other developments in the legal and regulatory environment which will have an impact, be it direct or indirect, on Real Estate Funds in the coming years are:
- Basel III
- Transfer pricing issues
- Solvency II
- New developments in IFRS
For more information please refer to our publications for the Real Estate and Infrastructure industry on our website by following this link