After being on the backburner for over 7 yrs, the Securities and Exchange Board of India (SEBI) has released draft rules for mutual funds real estate schemes, bringing a lot of relief to the MF industry. SEBI has given authorization to two types of real estate funds.
While the first group is of real estate MFs (REMF), and the other group is Real estate investment trusts or REITS. REMF will spend in real estate projects and mortgage-backed securities. These will be closed-ended funds, listed on the exchanges. As their net asset values will be declared daily, investors will have the choice to exit any day.
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According to sources, the new real estate fund has the potential to ensure fair to excellent return on investments.
The Indian real estate sector is set to get a breather from the market regulator SEBI’s move to allow Real Estate Mutual Funds. Real Estate Mutual Fund Scheme means a scheme of a mutual fund which has investment objective to invest directly or indirectly in real estate property and shall be governed by the provisions and guidelines under SEBI (Mutual Funds) regulations. The SEBI added that the schemes will have to be close-ended with its units listed on a recognised stock exchange wherein the net asset value (NAV) will be declared daily. Real Estate Mutual Funds (REMFs) have a useful purpose and a role which until recently was missing in the real estate ecosystem. REMFs should help ease the situation and compensate to some degree the relative absence of public equity and challenging debt markets..At present, not much equity funding is available to projects below 50 thousand square metres of built up area or 25 acres and there is hardly any domestic secondary market for stabilised income yielding assets.Mr. Mayani added, “Besides, with foreign money not permissible in fully built up commercial, residential and retail assets, this is a good vacant space for REMFs.REMFs would buy fully built assets and it should help unlock capital for developers. Also, with 15% allocations, which REMFs would have towards under-construction assets, some additional equity should also be available for non-FDI compliant projects. Introduction of REMFs is certainly timely and well intended REMFs would help in creation of an alternative investment portfolio for small investors or households who do not have the technical ability and the means to directly invest in the sector, catalysing a sophisticated and liquid market for mortgage backed securities and mobilisation of retail funds for assets through a regulated institutional route.For more view- realtydigest.blogspot.com
The news firms/companies, willing to jump in the MFs sectors only for launching REMFs will have to prove their five-year experience of carrying on the business in real estate sector before SEBI, as stated in the released guidelines. Moreover, the sponsors will have to fulfill all other eligibility criteria for being entitled.