Serious market unrest prompted by proposed new rules for Italy's real estate funds is hampering the sector's profitability and reputation with international investors, market experts have warned. Luigi Pischedda, country manager Italy at IPD, says uncertainty reigns among Italian fund managers after the government failed to clarify the intent and the impact of a recently issued law reforming real estate funds.

Traditionally, Italian real estate funds have offered exceptionally stable returns - second only to government bonds over the last three years, but the current situation is threatening to damage the sector's performance as well as fund managers' margins. Pischedda: 'This adds to a negative impact on the funds' reputation with international investors, who every other year are faced with legislative changes.'

Introduced in 1994, investment funds have grown to represent the lion's share of transactional activity in the past 15 years. Their development has significantly accelerated since 2004 when seeded funds made their appearance and investors were no longer obliged to buy their portfolios in the marketplace. By 2010, the sector had grown ten-fold to over EUR 40 bn, with market experts forecasting a further doubling in size by end-2012. But prospects started to sour in May last year when the government passed reforms in a bid to limit the use of these instruments by family offices as a means of tax evasion.

Although the new rules were to come into force last summer, to date there has been no further mention of their implementation. Meanwhile, transactions by funds have ground to a virtual halt, with no acquisitions signed during the second half of 2010.

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