Missed out on the recent boom in real estate due to fund shortage? Now, a few thousand rupees will be all that takes to profit from getting a real estate exposure.
With stock market regulator Securities and Exchange Board of India putting out the much-awaited regulations for real estate mutual funds (REMFs) on Friday, retail investors can now invest in real estate without buying land and apartment by going in for these funds.
“This opens up a new avenue for the common investor,” said AP Kurian, Chairman of the Association of Mutual Funds in India. “He can now access the real estate market with whatever small amount he has by buying units of such funds. It works just like any other mutual fund, but with real estate and related securities as the underlying assets.”
REMFs pool investors' money and buy varied real estate assets and related securities. These funds are required to invest at least 35 per cent of their net assets directly in real estate assets. The balance may be invested in mortgage-backed securities or securities of a company involved in real estate assets or development projects.
Mutual fund industry expects plenty of takers for REMFs among retail investors, who until now, had to invest huge amounts to get the benefits of real estate investments.
“REMFs will give the average small investor an access to the real estate sector by investing small amounts,” said Sandesh Kirkire, CEO of Kotak Mutual Fund. “Until now, he had only the option of investing directly in real estate properties, which involved huge sums. The investor can now have a share in real estate properties by buying units of REMFs.”
While REMFs help retail investors diversify their investments among residential properties, malls and so on across cities with the help of a professional fund manager, the move will also result in a better price-discovery mechanism in the real estate market.
“The entry of institutions will broaden and deepen the market and also create liquidity,” said Sumeet Mehta, Vice President, Capital Markets, Jones Lang La Salle Meghraj (India), a leading real estate consultancy firm. “Scientific investment methods and financial models will be used widely, which will result in a better price-discovery mechanism. Further, institutional money will bring in more transparency and better disclosures in the market.”
REMFs will be close-ended funds with units listed and tradeable on stock exchanges. They should get each asset valued every 90 days by two valuers accredited by a credit rating agency and take lower of the two for computing the net asset value (NAV). NAV of the scheme will be declared on a daily basis.
Further caps will be imposed on the fund on investments in a single city, project or securities issued by associate companies and sponsors. Funds are not allowed to invest in assets owned by the sponsor or the asset management company or any of its associates during the last five years the aforesaid entities hold tenancy or lease rights.
REMFs can not undertake lending or housing finance activities as well.