The Securities and Exchange Board of India (Sebi) had, a few weeks ago, announced the rules of the game for real estate funds. At least two real estate funds are already awaiting Sebi’s approval. These funds will not directly invest in real estate projects as they are ordinary equity funds and invest in shares of real estate and construction companies. The two real estate enthusiasts are HSBC Infrastructure and Real Estate Fund and SBI Real Estate Equity Fund, both open-ended funds.
Real estate stocks gained so much prominence in the market last year that the Bombay Stock Exchange (BSE) launched a Realty Index on 10 July 2007. By the end of the year, the index that tracks realty stocks had gained 73% (to 12,727 points, compared with the 35% gain in BSE’s benchmark Sensex index). Mutual funds, too, were a beneficiary of this momentum, with the average allocation to realty stocks at more than 8% of their total equity investments. But, 2008 has been a disaster so far.
The realty index is down 36% (at 8,043 points, compared with a 14.5% fall for the Sensex as on 15 May), but the index still looks better compared with the 50% fall from its 14 January peak (of 13,647 points) to the low of 6,806 points on 24 March.
Given the serious damage to the prices of realty stocks this year, it is unclear how many investors will buy the idea now. But, the likely launch of two realty-focused stock funds clearly shows that fund houses want to help investors chase the momentum in these stocks, or they truly believe in the long-term prospects of the sector. Only time will tell.