Financial Daily from THE HINDU group of publications
Thursday, Apr 28, 2005
Financial Daily from THE HINDU group of publications Thursday, Apr 28, 2005 |
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Markets
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Mutual Funds Real estate fund proposals worth $1 b filed with SEBI Veena Venugopal
Mumbai , April 27 PROPOSALS for launching over $1 billion worth real estate funds have been filed with the Securities and Exchange Board of India. With the opening up of foreign direct investment in the construction sector, there is a lot of interest from global investors to participate in the potential boom of the real estate industry in India. A large part of these investors are not keen on tying down their investments in a small number of select projects but want to broad base the investments as far as possible. Real estate investment trusts (REITs) are seen as the way to achieve optimum exposure at calculated risk levels and, hence, the large number of applications with SEBI. The frenzy in the real estate sector is high as returns from this sector currently exceed most other investment areas, according to investment experts. Yields on commercial real estate across metros in India are higher than those of many global real estate markets and investors are now keen on sinking their teeth into a part of this pie. Once cleared, these trusts will allow retail investors also to diversify into real estate investments. REITs are being promoted by Indian companies in the real estate sector and investment houses. These companies and fund managers have received several enquiries from institutional investors abroad, including CalPERS. "This is an opportunity waiting to be tapped. We are only waiting for regulatory clearance now, we already have enough clients waiting to invest," said the chief finance officer of a construction company. While the Securities and Exchange Board of India has not offered any response to the applications it has received so far, it is understood to be formulating methods to regulate these. So far, venture funds have been allowed to float real estate investment products. In their absolute avatar, real estate investment trusts are securities that sell like a stock, whether listed on the exchange or not, and invest in real estate directly, either through properties or mortgages. Globally, REITs receive special tax considerations, and are known to often offer investors high yields as well as a liquid method of investing in real estate. These REITs are usually equity-based, mortgage-based or hybrid. Equity REITs invest in and own properties, typically where opportunities of high rentals are available. Mortgage REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated by the interest that they earn on these loans. Hybrid REITs are combinations of these two. HDFC Ventures and ICICI Ventures have both recently launched products in this category. HDFC's India Real Estate Fund invests in equity and equity-linked instruments of companies engaged primarily in real estate in major cities in India. The 7-year close-ended fund requires minimum contribution of Rs 5 crore per investor. ICICI Venture also initiated its foray into the real estate and property investment management sector through the launch of a dedicated real estate fund, the India Advantage Fund III, with a corpus of $300 million.
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