BERLIN-The German federal government has not dropped plans toimpose a 10% across-the-board valuation discount on open-endproperty fund portfolios in the framework of new legislation to beproposed before the summer. However, industry specialists remainconvinced that its imposition, if it occurs, will damage the $110billion sector and could be its death knell.

Industry sources say that a wide-ranging discussion at thefederal finance ministry in Berlin at the end of last month betweennumerous real estate fund representatives did not touch on thediscount at all. It focused mainly on Berlin proposals for aminimum investment period, redemption notice, and possible separatetreatment of institutions and private savers.

However, there is no indication that Berlin has dropped theidea. “It is quite clear that this is not off the table yet,” saidone source, requesting anonymity. “But it is equally clear whatinstitutional investors will do if this is part of the legislativeproposal; they will simply transfer all their investments out ofthis vehicle so that such a move would actually just be a way forfund managers to earn fees and agios (entry fees) for reinvestingin other vehicles.”