India Investment Property » REMF

REMF Cleared By Finance Ministry

admin — Wed, 30 Jul 2008 05:36:45 +0000

The cloud on real estate mutual funds (REMF) has lifted. The finance ministry has brushed aside RBI’s concerns of REMFs violating foreign direct investment (FDI) norms in the realty sector. North Block has said the central bank’s concern stating that REMF scheme notified by Sebi in April contradicted FDI norms was unwarranted.

The finance ministry view could pave way for the launch of new investment avenues for small investors keen to tap the real estate sector’s growth potential. The doubts raised by RBI added to the hesitation in REMF launches.

Highlighting that the scheme allowed NRIs and FIIs to invest in real estate sector in conflict with the policy, the apex bank had asked finance ministry to intervene and take up the issue with Sebi.

The FDI policy prohibits investment in real estate but allows investment in construction and development sector with conditions like a three-year lockin , minimum capitalization of five million dollar for a wholly-owned subsidiary and ten million dollar for joint ventures, and development of at least ten hectares. The government had allowed 100% FDI in the construction and development sector on the automatic route in 2005 under the Press Note 2 issued that year.

In the reply to RBI, the ministry has stated that investment through REMFs could be allowed as there was no linkage between the investments made by a fund and its investors . REMF investors only own units in the fund and don’t drive its investments decisions on assets. Moreover, Sebi has prescribed several restrictions on investments by REMFs, government sources said.

The concerns expressed by RBI with regard to construction projects (as per Press Note 2, 2005) also did not hold much water as FII investment in pre-initial public offer are treated as FDI and face a three-year lockin , they said. There was no case for restricting NRIs investing in REMFs as they had been exempted from conditions applicable to FDI in the real estate sector.

SEBI Issued Guidelines For MF Real Estate Schemes

admin — Fri, 23 May 2008 11:58:20 +0000

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.

Realty Investors May Get Exit Route

Wed, 21 May 2008 14:36:09 +0000

A few real estate funds are looking for ways to offer an exit route for investors. They are in talks with some of the PE investors who can buy out the assets. This is primarily a precursor to a second fund that is being planned. REMF not comes into this category.

Sell the assets at a decent premium to PEs would help them generate a good return for investors, and thereby showcase the performance of the first fund.

The track record would help them attract new investors for the next fund. It may attract some old investors too.