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REMF Is Finally A Reality
Posted by Pradeep Sadanapalli | April 11, 2008 | 258 views
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Loading ...The much-awaited launch of Real Estate Mutual Funds (REMF) in the country will soon be a reality with the Securities and Exchange Board of India (Sebi) set to issue guidelines for floating REMF schemes, in a week. The issue has been pending with Sebi for the last two years.
The fresh guidelines to monitor REMFs will pave the way for small investors to invest in the booming real estate sector. They can invest a minimum amount of Rs 5,000 in these funds. A real estate mutual fund (REMF) has investment objective to invest directly or indirectly in real estate and should be governed by the provisions and guidelines under the Sebi (Mutual Funds), Regulations, 1996.
Currently, there are real estate funds in the country, which have been approved, but these are venture capital funds, which are targeted at high net-worth individuals or institutions. The venture capital arms of HDFC, Prudential ICICI, Kotak Mahindra, IL&FS, and Kshitji Venture have such products, but only for big investors. For example the HDFC Property Fund has a minimum investment of Rs 5 crore.
High prices and transaction costs make it a difficult investment for an average investor to take bets on real estate. REMFs will make it easier for the average investor to invest their hardearned money in real estate for multiple returns.
For a small investor, investing in property will now become affordable, owing to a substantial reduction in minimum investment size. Buying a REMF unit will be far cheaper than buying property in cities.
For example, a small investor wants to invest in real estate in Shameerpet on the city outskirts, with the expectation of rising prices as the area develops gradually into a ‘Biotech hub’ with companies such as Dupont, Monsanto announcing setting up of research facilities, it would cost anywhere between Rs 15 lakh to Rs 20 lakh for a 300 sq yard plot as per the existing market rates there.
Even if you could obtain the money, buying property involves all sorts of transaction costs. Finding the plot in the first place will take a fair amount of legwork and research.
Then there is the issue of negotiating the sale, obtaining the proper title and dealing with potential legal disputes. Then again even after taking ownership you will have to invest in maintaining your property. This is where a real estate mutual fund comes in.
The fund will invest in a large number of properties in different places thus providing much greater diversification than an individual is capable of. It will also take care of the costs of buying and managing property.
“Sebi has taken all the precautionary measures in framing the new guidelines to ensure that the retail investors are well protected against the risks involved in REMFs. Though it was delayed by more than two years, we hope this will pave the way for small investors to reap the benefits of the booming realty sector.
They can invest upto as low as a few thousand rupees,” said Mr T.C. Nair, full-time member, Sebi. Investing in real estate mutual funds has become a common concept in the US and Europe. At present, there are more than 300 funds functioning in these countries. Once the fresh guidelines by Sebi are out in a week, it is expected that there will be a deluge of REMFs in the country as several firms are eyeing that space for the past few years.
SOURCES:
Deccan Chronicle
Topics: Real Estate |
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