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Dedicated fund for realty launched

The high growth of the real estate sector has led a lager financial institution to launch a dedicated real estate fund. These funds are simultaneously enticing large institutional investors as well as High Net worth Individual (HNIs) to expand their portfolio.

Recently SEBI approved the country’s first venture capital fund, HDFC Property Fund, in real estate. Thus SEBI has not allowed to a property fund to come up as a mutual fund but as a venture capital fund. This will allow only the high net worth individuals and corporates to subscribe for this fund. HDFC board had approved the corporation’s entry into business of real estate venture fund after SEBI amended, the venture fund act.

According to SEBI guidelines, no venture capital fund shall issue any documents or advertisement inviting offers from the public for the subscription of the purchase of any of its securities or units. Even in such condition, the burning topic in the funds industry is dedicated Real Estate Funds. Fire Capital, HDFC, ICICI, Kotak and several others have already announced their entry in this business. Many more are in the advance stage of launching such funds.

HDFC Property Fund will start with a targeted fund size of Rs. 1,000 crores capital, which will be privately placed with large institutional investors and High Net worth Individuals, as the minimum amount to be invested is Rs 5 crores. Though the fund is meant for domestic investors, there is nothing for small time retail investors. The fund is 7-year closed-ended fund, meaning thereby that an investor cannot withdraw its deposit before the said time period.

HDFC India Real Estate Fund (HI-REF), the first scheme of the fund will invest in three broad categories of companies-projects, which are in planning stage, those in the development stage and those, which are complete. Real estate projects usually take three to six years to start commercial utilization and therefore investment in the planning stage would get the highest rate of return though it carries greatest risk.

Said, Kaki Mistry, MD, HDFC, “The fund is a value addition to its bouquet of services in the real estate sector. This is a first step and going forward we hope this will encourage professionalism and provide depth to this industry”.

The introduction of Real Estate Fund is a step towards transformation of Indian Real estate sector from unorganized to organized sector. It can also play a vital role in enhancing public confidence in real estate business, which is infamous for lack of transparency, unethical practices, poor quality of construction, use of black money etc.

Earlier Investors never evinced interests in real estate investments due to lack of proper and credible mechanism. However, with the increase in professional players entering the real estate business, coupled with the recent boom and higher rate of return compared to most of the other sectors, there has been a lot of demand from investors for a real estate investment scheme.

Sumit Jha, Deputy Director, NAREDCO.

Published in Times Property, TOI, April 16, 2005.

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