Thursday, February 01, 2007

Realty funds` rollout soon

Business Standard
Rajesh Abraham / Mumbai February 2, 2007
Retail investors have never had it so good in terms of diverse products from mutual funds.

Schemes that are linked to gold prices (Gold ETFs) to capital protection schemes to products that invest in overseas stock markets are now the flavour of the season.

Yet another product, which until now was beyond the reach of a small investor, will soon become affordable for him. It is the proposed real estate mutual funds (REMFs) which will enable investors to buy and sell real estate properties.

Market regulator Securities and Exchange Board of India (Sebi) has already made its stand known – that it is in favour of REMFs. But there are some issues that need to be addressed before allowing the launch of such schemes in the country.

“Once allowed, REMFs will allow Indian investors to buy a product that is pegging its investments in the booming real estate sector,” said Ashwin Ramesh, promoter and director of Primary Real Estate Advisors, an affiliate of Quantum Mutual Fund, which is eyeing an entry into the sector. While tax issues will likely be addressed in the forthcoming Budget, there are other bottlenecks that also need to be looked at by the authorities concerned. These include unifying the stamp duty and registration fees for property transactions, which now varies from state to state.

Ajoy Veer Kapoor, managing director of Saffron Advisors, said: “If you want to have apples to apples comparison, you need to address these issues. I’m sure that the authorities concerned will address these issues sooner than later.”

REMFs, once allowed in India, would give domestic investors a new and interesting tradable product in a sector that is on an upward trajectory, he added.

REMFs are expected to mobilise funds from the public to invest in real estate projects in areas such as office spaces, residential apartments, shopping malls and IT parks, and will earn their revenues through rentals and even selling the completed projects.

“The ownership model is more popular in mature markets such as the US,” said Ramesh of Primary Real Estate Advisors.

The US is considered the most mature of all markets with a market cap of over $350 billion in realty projects. There are over 200 listed entities in the US investing in real estate projects through Real Estate Investment Trusts of Reits.

Pranay Vakil, chairman of Knight Frank, said the recent clarification by the finance ministry that the Sebi would regulate REMFs has set the ball rolling on the rollout of norms for REMFs.

“This clarification has set the ball rolling and now the issue of taxability needs to be addressed. This is the finance ministry’s call and since the Budget is near, the issue is expected to be addressed in the Budget,” he said.

Several players including ING Vysya and Kotak Mahindra are expected to go the REMFs route, once the market is opened up, said industry officials.

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