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Kripa Raman

Mumbai, April 29 Although the computation of daily Net Asset Value for Real Estate Mutual Funds can only be approximate, since it would be impossible for the real estate component of the assets to be valued every day, the variations would be too insubstantial to matter, said accounting as well as industry experts.

The real estate assets are to be valued every 90 days from the day of purchase, SEBI has said, in its regulations for REMFs. The NAV would be calculated on the most current valuation of the assets held by a scheme.

“We did not anticipate that there would be daily NAV declaration for REMFs. But we don’t think the variation in real estate rates will change much on a daily basis either, so using the 90-day valuation for NAV may not be far off the mark,” said Mr Jayant Gokhale, Member of the Central Council, Institute of Chartered Accountants of India, and member of the sub-group constituted by the SEBI to advice it on guidelines for the REMFs.

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“Even when a fund has an asset and has leased it out, that cash flow too is hardly going to be short term,” he added. The daily NAV requirements will lead to a lot of computation requirement for REMFs; and although transparency is always desirable, there may be a cost-benefit issue to this, he said.

“Capital values will not change on a daily basis, what would change are accruals from rentals,” said Mr Pranay Vakil, Chairman of Knight Frank. When valuation has to be done every 90 days from the day of purchase, you may have valuations coming at various times for ten or fifteen properties that a fund has. So NAVs could change with some frequency, he said.

One problem that REMFs may face is that, being close ended, the lease period for rentals would have to be structured to close with the fund. This may prove difficult, as you will have to make sure that lease periods don’t spill beyond the fund’s life, he said.

“Also, assets have to be liquidated and distributed to the unit holders when the scheme closes. Then if one is forced to sell something against a deadline, there may be some loss of value.”

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