Ref: MPML/PMS/099/2008
Date : May 21, 2008SEBI Gives Clearance for REMFs
"All existing mutual funds will be eligible to launch real estate schemes, but a corporate looking to launch such a product will have to show proof of five years experience in the real estate business."
"Who says there is a slow down in the industry? Think twice - statistics reveal that during the quarter Jan - April 2008, 33 percent of private equity flowed into the real estate sector; the amounts that trickled into the IT and ITES sector were significantly lower in comparison! "
More than two years after the idea of Real Estate Mutual Funds (REMFs) was mooted in India, stock market regulator SEBI finally gave its blessing to fund houses looking to launch this product. Under the guidelines announced by SEBI, All existing mutual funds will be eligible to launch real estate schemes, but a corporate looking to launch such a product will have to show proof of five years experience in the real estate business.
The guidelines also suggest that the assets of real estate schemes be valued every quarter by two valuers. However, net asset values (NAVs) may have to be declared on a daily basis, since these funds will be close-ended and listed on stock exchanges. With this move, true diversification has arrived in the country.
Now, retail investors can invest in real estate as an asset class, which has a low correlation with equity and bonds, and enjoy the benefits of asset class diversification.
Besides directly investing in real estate, SEBI has also permitted investments in mortgage-backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities.
However, it has mandated that at least 35% of net assets of the scheme should be invested directly in real estate assets. Taken together, investments in real estate assets, real estate-related securities, including mortgage-backed securities, shall not be less than 75% of net assets of the scheme, SEBI said.
SEBI has also said caps would be imposed on investments in a single city, single project and securities issued by a sponsor or associate companies. Each asset is to be valued by two valuers - accredited by a credit-rating agency - every 90 days from the date of purchase. Lowering of the two values shall be taken for the computation of NAV, enhancing investor returns.
AMCs have also been banned from transferring real estate assets amongst its schemes or undertaking any lending or housing finance activities.
SEBI also plans to bar investment in any real estate asset, which was owned (or held tenancy or lease rights) by the sponsor, or the asset management company, or any of its associates during the last five years.
REMFs Permitted in Metropolitan Cities of India:
The national level market regulator SEBI stated that real estate mutual funds can invest in properties located in million-plus cities and urban agglomerations. Issuing a clarification, SEBI said the cities for investment by real estate mutual funds would include 35 cities in million-plus urban agglomerates and 27 under million-plus category as per the Census 2001. Million-plus urban agglomerations and cities include Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur, Lucknow, Nagpur, Patna, among various others.
SEBI has defined the real estate asset as:
"An immovable property located in the country in cities specified by the board, the construction on which has completed and is legally transferable".
In addition to the specified cities, such funds can also invest in SEZs as defined in the Special Economic Zones Act, 2005.
The mutual funds, however, cannot invest in properties under construction, vacant land, deserted property, land for agricultural use among other things.
SEBI after a long wait had recently notified that the mutual funds could invest in real estate and had specified that any MF proposing to launch such a scheme should have been in the business of real estate for at least five years.
It had also specified that every real state mutual fund scheme will have to invest at least 35 per cent of the net assets of the scheme directly in real estate assets. Further, it also said that every such fund will be a close-ended scheme and its units shall be listed on a recognised stock exchange.
At long last, the Government of India, through its Securities and Exchange Board of India, the apex national level regulator, has permitted Real Estate Mutual Funds in India (REMFs). This is undoubtedly a historical high point for the real estate industry. The doors for sophisticated real estate investments have been unlocked and retail investors will have one more investment option to diversify their portfolio.
Who says there is a slow down in the industry? Think twice - statistics reveal that during the quarter Jan - April 2008, 33 percent of private equity flowed into the real estate sector; the amounts that trickled into the IT and ITES sector were significantly lower in comparison!
Be a part of the emerging real estate order.
(Source: - Economis Times)