In a move that may change the face of real estate investment, the Securities and Exchange Board of India (SEBI) has cleared the entry of real estate mutual funds (REMFs). What this means is that those who wish to invest in the real estate market no longer have to invest directly in property; they can simply buy into REMFs that invest in real estate or related instruments.
With real estate prices skyrocketing, many found the entry barrier for investment too high. Now, even small investors can make money from the real estate boom.
For starters, funds have been allowed to set up close-ended schemes to invest directly in properties within India, in mortgage-backed securities and in equity shares, bonds or debentures of listed or unlisted companies that deal in and develop properties.
Market sources gave the decision a thumbs up. “When debt is taking a beating, and equities are volatile, real estate is the best place to park funds in,” said an MF source.
According to market sources, the close-ended nature of REMFs means that they can be listed on the exchange and be traded as an asset class. REMFs would have to comply with SEBI regulations and the schemes would be compulsorily listed on the exchanges. Their net asset values would be declared daily.
The impact will be significant. REMFs will open up a new arena for small and medium investors who’ll be able to invest in the property market with commitments as low as Rs 5,000 to Rs 1 lakh -- without having to buy property.
“It will bring in much more money into the real estate market and firm up prices. It’s ‘good’ money and will introduce more regulation,” said Shashi Kumar, Chief Investment Officer of IndiaReits, an Ajay Piramal realty fund.
Realty funds had been operating so far, but were only open to high net-worth individuals (HNIs) investing Rs 1 crore or more. “SEBI’s move will give more depth and investors to the market,” Colliers Jardine Property Services CEO Akshaya Kumar told HT. Kumar, however, did not believe that the large funds would increase prices. “There are already a lot of FDI and HNIs… With the stock market tanking, investment in property will be judicious,” he said.