Open-ended real estate funds in Germany and their liquidity rules

What you will learn

• How an open-ended real estate fund (offener Immobilienfonds) is priced
• The 24-month minimum holding period and 12-month notice period, and how to plan around them
• What the liquidity quota is and what happens step by step when a fund suspends redemptions
• How front-end loads and exchange sales below NAV affect your result

Explanation

The basic structure of investment funds and the protection of fund assets as special assets (Sondervermögen) are covered in the ETF course. Here we focus on what is special about property funds.

Structure and pricing

An open-ended real estate fund is a German retail fund regulated under the Capital Investment Code (Kapitalanlagegesetzbuch, KAGB) and supervised by BaFin (Federal Financial Supervisory Authority). It buys offices, shops, hotels, logistics or residential buildings and keeps part of its money in liquid assets such as deposits and bonds. "Open-ended" means new units are issued and old units are redeemed by the fund itself, not traded on an exchange between investors.

The unit price is the net asset value (NAV) per unit. The buildings are appraised by external valuers; under the KAGB property values must be determined at least every three months, and again when important valuation factors change. Because values come from appraisals, the unit price moves smoothly. The fund looks far less volatile than listed real estate shares, but values can drop sharply when a revaluation finally reflects a weaker market.

Most funds charge a front-end load (Ausgabeaufschlag), often several percent of NAV, plus annual management fees.

Holding and notice periods

Buildings cannot be sold in a day, so the law limits how fast investors can leave. For units bought today:

• Minimum holding period (Mindesthaltefrist): 24 months. You cannot return units to the fund earlier.
• Notice period (Kündigungsfrist): 12 months. You must give irrevocable notice one year before the redemption date.

Notice can be given during the holding period, so the earliest exit is 24 months after purchase if notice is given at month 12. Units bought before 2013 fall under transitional rules (an allowance of €30,000 per calendar half-year).

The only faster exit is selling units on a stock exchange, where some fund units are traded. There you get a market price, which can be well below NAV when many investors want out.

Liquidity quota and suspension

The fund must hold at least 5% of its value in liquid assets available for redemptions, and liquid assets may make up at most 49% of the fund. More liquidity protects redemptions but dilutes the property return.

If redemption requests exceed available liquidity, the management company must suspend redemptions (Aussetzung der Rücknahme) and sell properties on reasonable terms. The KAGB sets a timetable:

• after 12 months of suspension, properties may be sold up to 10% below their appraised value;
• after 24 months, up to 20% below appraised value;
• if liquidity is still insufficient after 36 months, the fund must be wound up and the proceeds distributed to investors. A third suspension within five years has the same effect.

This timetable was amended in 2026, so check the current text of the KAGB. In a wind-up, money arrives in instalments as buildings are sold, often over years.

Worked example

Hypothetical example: On 1 March 2026 you invest €20,000 in a fund with a NAV of €50.00 and a front-end load of 5%. Assume the NAV rises 2.5% per year including reinvested income. Taxes and custody fees are excluded.

1. Issue price = €50.00 × 1.05 = €52.50. Units = €20,000 ÷ €52.50 = 380.95 units.
2. Earliest exit: give notice on 1 March 2027 (month 12); redemption on 1 March 2028 (month 24, after the holding period).
3. NAV after two years = €50.00 × 1.025² = €52.53. Value = 380.95 × €52.53 ≈ €20,012.
4. Gain after two years ≈ €12: the 5% load has used up almost two full years of return.

Liquidity check, same fund: total value €5 billion, liquid assets 8% = €400 million. Notices for €600 million arrive for the same date. Shortfall = €600m − €400m = €200 million. Unless buildings are sold in time, redemptions are suspended for everyone.

Common mistake

Practice activity

Hypothetical: you invest €10,000 at a NAV of €40.00 with a 5% front-end load. The NAV rises 2% per year. (a) How many units do you get? (b) What are they worth at NAV after three years? (c) After one year you urgently need the money and sell on an exchange at 6% below the NAV at that time. What do you receive?

Key takeaways

• Open-ended real estate funds are priced by appraisal, so a smooth price chart does not mean low risk.
• New units need a 24-month holding period and 12-month notice; plan exits years ahead.
• When redemptions exceed liquidity, the fund suspends redemptions; after 36 months without enough liquidity it is wound up.
• Front-end loads and exchange discounts can absorb several years of return.

Next step

Next, you will examine newer ways to invest small amounts in property: real estate crowdfunding and tokenised real estate, and the investor protection rules that apply to them.