This Master Thesis has the aim to identify the investment patterns of German commercial real estate funds in Sweden. Questions of “when”, “how” and “why” they entered the Swedish market are answered. Also the local distribution of these investments is taken into consideration. The motives why they had and still have chosen the Swedish market are explained and compared with several former research papers about foreign investment motives. 19 interviews have been made with German real estate funds as well as Swedish advisor companies in order to answer these questions. The interviews with German funds have shown that they face several problems due to the German Investment Act. The main difficulties are the prohibition of the double layer structure, hierarchy problems and strict regulations concerning investment rules. Thus German funds were limited in their ability to make decisions. But the German Investment Act will change and liberalize the German funds. Thus real estate funds will have the possibility to compete with other investors for projects, which they could not do before. German funds entered the market, because it promised to be a growing and stable market. At the time when German funds entered Sweden, the real estate situation and economic position was better compared with the German business and real estate cycles. The funds were mainly driven by diversification and the high liquidity in Germany. Official statistics showed that diversified international portfolios performed better than national ones. Another point in the investigation is the development of the interest rate in Sweden. Forecasts predict an increasing interest rate and so highly leveraged investors are likely to leave the market. German funds instead can be 100% equity financed and so will win more market share in the next years.
Table of Contents
1 INTRODUCTION
1.1 Background
1.2 Purpose
1.3 Method
1.4 Limitations
2 THEORY ABOUT INTERNATIONAL INVESTMENTS
2.1 Theory about direct investments
2.2 Concept of ownership
2.3 Diversification
2.4 Investment motives and problems
2.5 Real Estate cycles
2.6 Bubble theory
3 REAL ESTATE FUNDS
3.1 General definitions
3.1.1 Forms of Funds
3.1.2 Open-ended versus closed-ended funds
3.2 Structure of German real estate funds
3.2.1 Open-ended funds
3.2.2 Closed-ended funds
3.3 Laws and regulations
3.3.1 Taxation rules
3.3.2 Double tax agreement Germany-Sweden
3.3.3 Mortgage rules
3.3.4 Double layer structure
3.4 Historical development in Germany
3.5 Historical development in Sweden
4 GERMANY
4.1 General economic situation
4.2 Real estate situation
5 SWEDEN
5.1 General economic situation
5.2 Real estate situation
6 FOREIGN INVESTMENTS IN SWEDEN
6.1 International investments
6.2 Motives and investments of international investors
7 PATTERN OF GERMAN FUNDS
7.1 Development of German investments in the years 2000-2007
7.2 Types of German funds
7.3 Type of properties and locations
8 INVESTMENT MOTIVES
8.1 Key factors for investment decisions
8.2 German investment motives
8.3 Investment strategy
8.4 Risk
8.5 Recent market trends
9 HYPOTHESIS TESTING AND THEORETICAL EVALUATION
9.1 Hypothesis testing
9.2 Theory of property ownership
9.3 Investment motives
9.4 Bubble theory
10 CONCLUSIONS
Objectives and Research Topics
This master's thesis aims to investigate the investment behavior of German commercial real estate funds in the Swedish market, specifically focusing on the timing, methods, and underlying motivations for their market entry. The research seeks to explain how these funds have influenced the Swedish real estate market and to provide insights that help local stakeholders, such as advisors and domestic investors, better understand and engage with these foreign market participants.
- Historical development of German real estate funds in Sweden.
- Analysis of investment patterns and motives (e.g., diversification, liquidity, market cycles).
- Impact of the German Investment Act on fund strategies and decision-making.
- Comparison of foreign investment theories with empirical findings from expert interviews.
- Evaluation of the Swedish commercial real estate market climate for foreign investors.
Excerpt from the Book
2.1 Theory about direct investments
In a more and more globally acting world, trading and cross-border investments become more important. Private persons as well as companies see an advantage in investing in other parts of the world. The trade between countries is influenced by the independence on the product market, the capital markets and the labour markets. Thus investors can benefit from the different market cycles and conditions.
Foreign direct investments (FDI) are investments that show a long-term interest by a resident entity in one country in an enterprise in another country. According to OECD the direct investors are attracted by a long lasting relationship to the “direct investment enterprise” and an influence in the management of the enterprise. In order to classify such an investment the investing company must have at least 10% of the shares or the voting power. Axelsson and Victorin (1999) basically divide between three kinds of FDI’s: green-field investments, mergers and acquisition and expansion investments. According to Caves (2007), green-field investments will be undertaken more often than acquisitions, because the direct investor fights more against governmental restrictions than against jobs.
Compared to the trading theory of Stiglitz (2000) the reasons for the investing company become clearer. The product market in the new country has advantages, for example resources could easily be bought or a new technology is already available and can increase the quality and quantity of goods. Furthermore, the direct investment enterprise can provide benefits from the capital markets. For example tax advantages or liquidity issues. The last point is the labour market that can attract the direct investor. The labour supply is high and perhaps on a qualified level. Additionally, the salaries play an important role. If salaries are lower than in the “home country” extra profits can be generated. On the other hand Axelsson and Victorin (1999) stated in their report from 1999 that FDI leads to an inflow of capital into a country and thus to an increase of demand of products and labour.
Summary of Chapters
1 INTRODUCTION: Outlines the background of German funds in Sweden, defines the purpose of the thesis, and describes the methodology involving literature research and expert interviews.
2 THEORY ABOUT INTERNATIONAL INVESTMENTS: Provides a theoretical foundation covering direct investments, ownership concepts, diversification, real estate cycles, and bubble theories.
3 REAL ESTATE FUNDS: Explains the types and structures of German real estate funds, including legal frameworks, taxation, and historical developments.
4 GERMANY: Analyzes the economic and real estate situation in Germany, focusing on transaction volumes and market trends influencing fund behaviors.
5 SWEDEN: Examines the Swedish economic and property market landscape, highlighting its attractiveness for foreign investment and specific regional developments.
6 FOREIGN INVESTMENTS IN SWEDEN: Details the history, market share, and motives of international investors in Sweden, including an analysis of major transactions.
7 PATTERN OF GERMAN FUNDS: Investigates the specific investment behaviors, fund types, and regional property preferences of German funds in the Swedish market.
8 INVESTMENT MOTIVES: Reports on primary decision factors for German funds, including advantages and disadvantages of the Swedish market from a professional perspective.
9 HYPOTHESIS TESTING AND THEORETICAL EVALUATION: Validates research hypotheses against interview findings and evaluates the observations through the lens of economic theory.
10 CONCLUSIONS: Summarizes the key findings regarding the entry and investment strategies of German funds and their long-term future in the Swedish market.
Keywords
German commercial real estate funds, Sweden, investment motives, diversification, real estate market, international investment, property investment, market entry, economic cycle, taxation, German Investment Act, real estate cycles, foreign direct investment, investment strategy, office market
Frequently Asked Questions
What is the core focus of this thesis?
The research focuses on the entry, investment patterns, and motivations of German commercial real estate funds operating in the Swedish market.
What are the central thematic fields covered in the work?
The work covers international investment theory, the structure of German funds under German law, the economic conditions of both Germany and Sweden, and the dynamics of the Swedish commercial property market.
What is the primary research goal?
The primary goal is to identify why and how German funds entered the Swedish market and to analyze how these factors correlate with the overall development of the Swedish real estate sector.
Which scientific methodology is applied?
The author uses a combination of scientific literature review, historical data analysis from professional reports, and qualitative expert interviews with German fund managers and Swedish advisors.
What does the main part of the thesis cover?
The main part covers the theoretical framework, a detailed look at German fund regulations, market analyses of both countries, empirical data from interviews regarding investment motives, and the testing of specific hypotheses.
Which keywords characterize this publication?
Key terms include German real estate funds, diversification, Sweden, market entry motives, real estate cycles, and the German Investment Act.
How does the German Investment Act influence German funds in Sweden?
The Act creates strict regulatory boundaries, such as limitations on debt financing and the "double layer" investment structure, which initially disadvantaged German funds compared to other foreign investors who could operate more flexibly.
Why did German funds initially favor Sweden as an investment destination?
Funds were primarily attracted by Sweden's economic stability, the opportunity for portfolio diversification, and the availability of newly built, high-quality office properties that offered better yields than the domestic German market at the time.
What specific challenges do Swedish advisors face when working with German funds?
Challenges often include the time-consuming nature of German decision-making processes, hierarchical structures, and the demand for higher levels of detailed property information compared to local Swedish standards.
- Citation du texte
- Master of Science Carolin Dörr (Auteur), 2008, German commercial Real Estate funds in Sweden, Munich, GRIN Verlag, https://www.grin.com/document/92399
