The entry of real estate funds in the already over-heated realty market is bound to cause quite a stir. A slew of real estate funds, promoted by Indian and foreign financial institutions, are scouring the real estate market for properties with assured returns to invest in.
With the entry of real estate mutual funds, builders will be hard-pressed to develop quality projects and leeway for sub-standard construction practices will be considerably reduced. Real estate funds are expected to acquire real estate assets with quality blue chip tenants and focus on growing markets witnessing substantial urban development.
Investing in real estate mutual funds (REMFs) could soon become a reality. Almost 18 months after the Securities and Exchange Board of India (SEBI) allowed the launch of REMFs, the market regulator now hopes to put out the final guidelines for these funds within a month.
The launch of REMFs has been stalled due to the absence of a proper valuation mechanism for investments in unlisted real estate entities and accounting norms to be followed for such funds. The regulator has been working on the issue with the Institute of Chartered Accountants of India (ICAI) and the Association of Mutual Funds in India (AMFI). A SEBI official said: 'We have decided to use professional realty valuers for valuing investments in unlisted entities. The idea is that if private equity funds can invest in unlisted realty entities and have proper valuations so can mutual funds. We are finalising the guidelines.'
REMFs, or mutual funds that pool public money to invest in real estate assets and companies, are allowed to park their money in mortgage-backed securities, equity, bonds and debentures of listed or unlisted real estate companies. There were also issues over the relevant accounting methods to be followed for such funds and confusion in the industry over the daily calculation of net asset value (NAV) of these funds.
Real estate being a more stable asset compared to equity, the mutual fund industry felt that the daily calculation of NAV was needless. It is understood that funds that invest only in real estate properties would not be required to calculate their NAV on a daily basis. However, funds that invest in shares and securities of real estate companies would need to calculate the NAV on a daily basis.
'All the necessary issues have been discussed and the ICAI has submitted the accounting norms as well,' said A.P. Kurian, chairman of AMFI. A number of fund houses like ICICI Prudential, Principal and HDFC have been awaiting regulatory approval of their real estate fund schemes.
HDFC Property Fund, DHFL Venture Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund (A group venture of Pantaloon Retail India Ltd) and India Advantage Fund (ICICI) are some of the prominent real estate funds in India.
