Mutual fund houses in the country have so far not evinced interest in launching real estate mutual funds though regulations have been in place since 2008 by the Securities and Exchange Board of India, reports Business Line.
Real estate mutual funds are mutual fund schemes established in the form of a trust, which invests directly or indirectly in real estate assets or permissible assets. The mandate given to real estate mutual funds was that they would invest at least 75 per cent of the scheme’s net assets in real estate companies and related securities. In this, a minimum of 35 per cent was to be invested directly into real estate. The funds also weren’t allowed to invest more than 30 per cent in a single city, or more than 15 per cent in a single real-estate project, and not more than 25 per cent of the total issue capital of any unlisted company. These funds were required to have mandatory listing on the stock exchanges.
The want of transparency and uncertainty in the real estate sector has kept the industry players away. “Currently, mutual fund schemes aren’t even investing in real estate company papers. Also, there is a lot of uncertainty in this market which is another cause for worry,” said Debasish Mallick, managing director & chief executive director, IDBI Asset Management.
Real-estate assets held shall be valued at cost price on the date of acquisition and at “fair price” every 90 days from the day of purchase by two valuers accredited by a rating agency. The lower of the two values shall be taken for the computation of net asset values. In case there is an unavailability of prices in an active market, information from a variety of sources would be considered with no specific mention of what would constitute a variety of sources.
“Real estate mutual funds should help in unlocking and churning capital by developers who would then sell the stabilised assets to real estate mutual funds. This would aid creation of an alternative investment portfolio for small investors/ households who don’t have the means or the technical ability to directly invest in real estate,” said the CEO of a domestic mutual fund house.
Another concern was the calculation of the net asset value of the scheme on a daily basis, when up to 25 per cent of the scheme’s corpus can be invested in unlisted companies. Also, with respect to taxation of these schemes, there is confusion if these entities will be taxed as a debt fund or an equity fund. As per the current regulations, real estate mutual funds schemes are likely to be treated as debt funds for taxation, as they will invest directly in real estate projects.
However, in spite of the permission from the regulator, no fund house has come forward to launch a real estate fund, said U K Sinha, chairman, Securities and Exchange Board of India, at an event on recently.