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Now, own your piece of real estate action :

They are touted as the next big thing. Real Estate Mutual Funds (REMF), which many investors hope will be launched soon, are expected to give investors their share from the real estate boom. However, there are several issues that may delay the launch of these funds.

Typically, these funds own properties such as malls, commercial buildings and hotels. They make money by renting out these properties or selling them at better prices. They also invest in other areas related to real estate.

For example, the fund could buy shares of a real estate company or invest in developing a property along with a builder and share the profits. The profits are shared with the investors. Investing in such mutual funds means that you are buying property in a dematerialised form.

These funds can be a great investment avenue. Take USA, for instance. The country alone has around 197 such funds which have assets under management of around $330 billion.

Though several fund houses are preparing themselves for REMF, there are currently no such fund in the Indian market. Everyone is waiting for Sebi to announce the guidelines for the product.

There are ambiguities surrounding these funds. These relate to government policies and the unorganised nature of real estate sector. Several states are holding on to archaic laws. For example, Maharashtra's Urban Land Ceiling Act (ULCA) puts restrictions on the development of tall buildings.

Pending reforms in other areas-such as property redevelopment, environmental clearance and slum redevelopment in Maharashtra-plague the industry. Land reforms and absence of substantial tax incentive for real estate development too are problem areas.

The real estate sector is also notorious for low liquidity and zero transparency. There are also problems with valuations of the property and its verification.

Even the market regulator's guideline of daily declaration of net asset value (NAV) of these funds is being questioned. Fund managers want quarterly declaration of the NAV, as the property prices don't change on a daily basis.

However, don't lose hope. Fund houses are hopeful that these funds will be successful as the governments address the legal issues. They also believe transparency is slowly creeping into the real estate sector.

India Business 16 Aug, 2006

Real estate funds will be launched soon. Are they worth investing in, given the possibility of a meltdown in property markets?

While a decision has been taken to allow real estate funds, detailed guidelines are awaited.There are several advantages of investing via real estate funds. The amount needed to invest is much less than investing directly in property. The fund house would have to diversify, so the investments would be in a number of properties, commercial and residential, across locations. Also, liquidity would be available for periodic redemption. Most importantly, the legal and documentation hassles of buying and selling property would be handled by the fund house.

While real estate markets also fluctuate, they are expected to remain buoyant on a medium-to long-term basis. The expected continued growth in the economy would augment the need for residential and commercial property. Also, there is going to be a lot of liquidity. Apart from loans being easily available, real estate venture funds for institutional and HNIs have raised a lot of money. Further, global players have raised sizeable funds to invest in the Indian real estate space.

Therefore, real estate funds should form part of an investor’s overall portfolio comprising various asset classes. However, it should not by itself comprise the entire investment of a person.

Monday , September 11, 2006 Express Money

Sebi clears norms for real estate mutual funds :
VCFs allowed to exit after one year lock-in

MUMBAI, JUNE 26 : The Securities and Exchange Board of India, at its board meeting on Monday, approved the guidelines for real estate mutual funds and also gave its nod for lifting the lock-in period for venture capital funds which had remained invested for over a year and were offering their stake through initial public offers.

Sources said the Sebi board would soon meet in two weeks' time to discuss other important issues like allowing institutional investors to sell short, Introducing securities lending borrowing system (SLBS) and also physical settlement in the derivatives segment.

According to Sebi board sources, these issues were also discussed at the meeting but board members wanted to know more about how international markets had handled these issues. “Once we get to know how these issues are handled in the international market, we will discuss the matter in another two weeks,” a source in the Sebi board said. Sebi said, schemes floated by real estate mutual funds would have an investment objective to invest directly or indirectly in realty. These funds will be governed by Sebi (Mutual Funds) Regulations. The funds will be initially close-ended and their units will be compulsorily listed on the stock exchanges. The real estate mutual funds will have to declare their net asset value on a daily basis.

Sebi said all these funds would have to appoint custodians that have been granted certificates of registration to carry on the business of custodian of securities by Sebi. Custodians will safe-keep the title of real estate properties held by the funds. These schemes can invest directly in real estate within India.

The Finanial Express, Tuesday, June 27, 2006

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