Mumbai: After stocks, gold and bonds, India’s capital markets regulator has now allowed asset management companies to float funds that invest in real estate.
The move by Securities and Exchange Board of India, or Sebi, will allow retail investors to take advantage of the boom in property prices by putting in far less amounts than it takes to buy a house or land.
“The rationale of the product lies in fact that small retail investors will now be able to get exposure to this asset class (real estate) without having to deploy a substantial amount,” said Milind Barve, managing director of HDFC Asset Management Co. Ltd.
For realtors caught between a volatile equity market and reduced means of borrowing, Sebi’s decision opens up another source of capital. “It will give them one more source of institutional funding, but will take some time before it becomes a significant source.”
Sebi has modified its mutual fund rules to allow asset management firms to launch real estate mutual funds, or REMFs, if they have a sufficient number of experienced realty professionals on board. New fund houses will be able to start such funds only after they have been managing assets for at least five years. The new norms say the realty funds will have a fixed number of outstanding shares, popularly known as closed-end funds, that would have to be listed on a stock exchange Sebi recognizes. The net asset value of the funds will be calculated at the close of each business day, based on accumulated income and the most recent valuation of the real estate assets held by the scheme.
To begin a real estate fund, asset management firms will have to invest at least 35% of the scheme’s total assets directly in real estate properties in India that could include special economic zones.
Sebi has mandated that at least 75% of a scheme’s total assets should be invested in real estate projects and securities. It has also said the firms cannot invest more than 15% in a single real estate project.