Banks, Estonia, Financial Services, Funds, Good for Business, Real Estate

"Real estate funds have increased especially fast in the past few years. In October this year the volume of assets was more than twice the size it was at the start of the previous year," Bank of Estonia economist Mari Tamm writes on the bank's blog.

According to Tamm, one of the reasons behind the growth is that new funds and investments have been added as well as the increase in real estate prices. "Investors are showing more interest in real estate since the productivity of financial assets has declined due to lower interest rates. A fast increase is not only characteristic of Estonia, but can be seen in many regions around the world," she said.

In spite of fast growth, the volume of real estate funds is still small when comparing with banks, Tamm said. "Despite the fast growth recorded in the past few years, the volume of real estate funds' assets is still small in Estonia. At the end of October eight real estate funds with total assets of 321 mln euros were registered in Estonia. The total volume of funds' investments is somewhat bigger than that because, in addition to investors' money, loan money has also been used for investments. But even when taking account the total value of investments, real estate funds only amount to 3% of GDP as well as the total assets of banks," Tamm writes.

According to Tamm, about a third of real estate funds' shares and holdings are owned by Estonian pension funds. Another third is owned by Estonian companies and households, while about a fourth is owned by foreign investors, most of whom are banks of neighboring countries and other finance enterprises.

"In addition to money received from investors, funds are often funding investments with bank loans," Tamm writes. By the end of 2015 funds had borrowed around 220 mln euros from banks, which made up less than 2% of banks' total loan portfolios.