Investing in Real Estate Mutual Fund

April 12, 2007	(4 votes, average: 2.5 out of 5)  Loading ...
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The real estate business is estimated to be of over Rs 675 billion and growing at the rate of 30% a year. In the next 10 years, it is estimated to witness a gigantic rise Rs 4725 billion.

With the demand fundamentals displaying unusual strength, a majority of corporates have forayed into the dispute, each jostling hard to make hard cash. The matter that is in high discussions with the Government sees a hope that it may allow mutual funds to pump in real estate market.

The real estate industry has been largely contributing to the GDP. Its share has shot up from 5.25% in 2002-03 to 7% in 2004-05. The market is large and demand driven. It has been making appreciations in value over the years.

Investing in real estate mutual funds has become a common concept in the US and Europe. The US Government has always wanted to broaden the space for real estate investments and reach to small investors.

At present, there are more than 300 funds functioning in these countries. They are mainly of two types – Real Estate Investment Trust (REIT) and Real Estate Mutual Funds (REMF). These funds generate a major part of their revenue from real estate development management (own and operate), rental or direct investment in physical property. This constitutes 60%. A minimum of 35% of the funds are often goes as a part of investment in properties.

The remaining part can be either in mortgage-backed securities, shares, bonds or debentures of companies trading in different securities such as debt and money market instruments, but not shares of companies that do not deal in property.

REITs are not obliged to pay tax on net income but 90% of the income has to be distributed as dividend. The dividends are exempted from tax. Any company that qualifies as REIT is allowed to deduct dividend paid to its shareholders from the corporate taxable income. Real Estate Funds in the US have reportedly been able to yield high returns of 12.5% annualized on a five year basis.

News Published Under:   Real Estate Trends |

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