The Hindu Business Line : Real estate MFs must get assets valued every 90 days

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Real estate MFs must get assets valued every 90 days

SEBI notifies amended regulations after consulting ICAI

SEBI also said new mutual funds with only REMF schemes may also be launched provided the sponsors have been carrying on business in real estate for at least five years.

Our Bureau

Mumbai, April 25

Real estate mutual funds (REMFs) schemes shall declare their daily net asset value and get their real estate assets valued every 90 days, said SEBI, notifying the amended regulations for mutual funds, to permit REMFs.

REMFs have been under consideration by SEBI for almost two years now, the delay being on account of the market regulator and the Institute of Chartered Accounts of India (ICAI) debating the accounting standards for determining the net asset value of REMFs.

This opens up opportunity for the common investor to take advantage of the real estate market which earlier attracted only private equity investment, said Mr A.P. Kurian, Chairman, Associations of Mutual Funds in India.

"The issue of valuations and other details have been ironed out with the Institute of Chartered Accountants of India."

SEBI's new regulations say REMF schemes shall be close-ended.

At least 35 per cent of the net assets of the scheme shall be invested directly in real estate assets. Taken together, investments in real estate assets and real estate-related securities (securities of real estate companies, and also mortgage-backed securities) shall not be less than 75 per cent of the net assets.

The regulations also say that not more than 30 per cent of a scheme's net assets shall be invested in a single city, not 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.

Investment in real estate assets owned by the sponsor or the AMC, or in assets in which they have tenancy or lease rights, is not allowed.

A mutual fund may not transfer real estate assets among its schemes.

Nor can an REMF scheme undertake lending or housing finance activities. All financial transactions of the scheme shall be routed through banking channels and shall not be cash or unaccounted transactions.

The title deed of the assets held by a scheme may be kept in the custody of a custodian registered with the Board.

VALUATION

The 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 credit rating agency. The lower of the two values shall be taken for computation of NAVs.

The NAV will be computed on the basis of the most current valuation of the real estate assets held by the scheme and accrued income thereon.

The best evidence of fair value is given by current prices in an active market for similar real estate assets, said SEBI. In the absence of current prices in an active market, information from a variety of sources shall be considered.

Where the fair value of the asset is not easily determinable on a continuing basis, the real estate asset shall be measured according to accounting standard (AS) 10, said SEBI.

WHAT ARE ASSETS

A `real estate asset' includes identifiable immovable property in the country including SEZs, said SEBI. It does not include projects under construction, vacant land, deserted property and land specified for agricultural use, or land reserved or attached by the Government.

SEBI also said new mutual funds with only REMF schemes may also be launched provided the sponsors have been carrying on business in real estate for at least five years.