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This story is from August 16, 2006
Now, own your piece of real estate action
Real Estate Mutual Funds are expected to give investors their share from the real estate boom.
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.
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.
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.
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.
End of Article
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