In a bid to allow more investors to participate in the real-estate boom, a Delhi-based tax consultant is promoting joint investment groups, informal mutual fund-like entities. While the benefits, in terms of returns, are significant, there is one little problem: None of these groups are regulated.
Subhash Lakhotia runs 17 such groups under the name Investors Club. Much like an asset management company, Investors Club comes out with regular offers for medium and small investors.
For anything between Rs5,00,000 and Rs25,00,000, an individual can buy into a scheme. A typical group run by Lakhotia comprises 10-18 investors, and each is run like a close-ended fund (no investor can bail out for a year). Investors Club then approaches developers and builders to buy between 10 and 20 flats in properties that are being developed.
Lakhotia claims that last year, the average return on the 17 groups he runs was 24%. “Investments made under joint groups bring in the best deal at the most competitive market price available from the builder-promoter,” says Lakhotia.
Many of the joint investor groups are registered as a corporate entity, partnership firm or an Association of Persons (AOP).
“These are valid groups floated by few individuals, but cannot claim to operate like mutual funds. For this, one needs to be registered with Sebi (the stock market regulator),” says A.P. Kurian, chairman of Association of Mutual Funds in India (AMFI), the apex body of all registered asset management companies.
“Though there is no regulatory body in India for real estate, this is an arrangement between individuals to share profits where the regulator has no role to play,” adds Sanjeev Srivastava, director general of National Real Estate Development Council (Naredco), an industry body.
Nitin Saxena, president, the All-India Consumer Education Society, a consumer rights organisation, is not worried about the legality of such groups. What bothers him is the possibility of investors not be getting a fair deal. “Under these arrangements brokers and builders share most of the profits with investors getting a minuscule share,” he says.
Lakhotia brushes away this criticism. The success of his schemes have encouraged him to think big, and he now wants to form investor groups that will focus on agricultural land in Bihar, Rajasthan, and Uttaranchal.
“Land is very costly in the metros; no builders are looking at these places; and there is a lot of value waiting to be unlocked,” he says by way of explanation.