Real Estate Mfs And Reits Come Cheap
They say bureaucracy in India can be slower than the most patient snail. So more than seven years after the proposal was first mooted the Securities and Exchange Board of India Sebi came out with its draft guidelines for real estate mutual funds MFs. This move has brought much joy and relief to the MF industry.
Now the industry is out to convince domestic investors that the move could not have come at a more opportune time. In these volatile times real estate acts as a good diversification option due to its low correlation with equity and bonds. Besides retail investors can now invest in actual real estate projects with amounts as low as a few thousand rupees.
Sebis move to launch realty MFs will not only foster diversification in the MF industry but will also promote wider participation in the real estate sector says Vineet K Vohra MD CEO ING Investment Management a fund house that helps manage around 200 billion in various real estate projects around the globe.
Mr Vohra says the move will help bring the Indian market place closer to global norms. As for delivering returns sample this INGs Global Real Estate Fund which invests in shares of international real estate companies emerged unscathed in the recent stock market turbulence.
The fund not only took the crash in its stride but also delivered positive returns over the same time period. If you had invested Rs 10000 separately in the BSE Sensex BSE Realty index and ING Global Real Estate Fund on January 10 08 your investment would be worth Rs 7900 Rs 5500 and Rs 10800 respectively as on April 22 08. Sebi has given approval to two kinds of real estate funds. The first category is of real estate MFs which will invest in real estate projects and mortgagebacked securities.
These will be closedended funds listed on the exchanges. As their net asset values NAVs will be declared daily investors will have the option to exit any day. So you can now say goodbye to the old tradition of illiquidity in real estate investments. Real estate investment trusts REITs in short constitute the second category of real estate funds.
These products are very popular abroad. The most common version of this class of funds allows an investor to earn fixed income like returns through rents of commercial properties . Most REITs are listed on the exchanges and have tax incentives for investors.
Put simply REITs work like fixed income instruments rents as coupons while realty MFs will seek capital appreciation like a stock price going up by investing in properties. For years real estate was synonymous with lack of transparency in transactions and absence of an index making it difficult to track prices.
Various fund officials like INGs Mr Vohra hope that the introduction of REITs in India will change all that. They are betting on such products ushering in greater liquidity to this asset class as well as freeing up developer capital for further investment changing the dynamics of the sector as well.
With the current real estate boom and no signs of any fall in demand for homes or offices this may be the best time for investors to own a share of the lucrative realty sector. Real estate MFs and REITs offer the cheapest and most convenient way to do so. However lets hope that smoother legislative framework and a clear taxation policy will be put in place for these products making them investorfriendly .
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