The Hindu Business Line : ‘REMFs will make the sector more organised, transparent’

Kolkata, April 27 The much awaited nod on Friday by SEBI to launch real estate mutual funds will help the real estate sector to be more organised and transparent while providing retail investors with a new avenue in a relatively stable asset class, say experts.

The timing of the launch is also good for both developers and investors, they say. While developers seem to be happy getting an alternative source of funding at a time of tight money policy, fund managers say this is the right time to invest when real estate prices are on the decline.

“For the first time, the realty MF is going to provide an avenue to retail investors to participate in real estate as an asset class, giving them twin benefits of professional management and diversification,” Mr Sanjay Sinha, CIO, SBI MF, said.

“We do not expect the size of funds to be too big at the outset but 3-5 years from now the kitty can be expected to touch the Rs 30,000-50,000 crore mark. This would definitely contribute to better price discovery in real estate asset,” Mr Sinha said.

Mr. Rahul Todi, Managing Director, Shrachi, said, “the timing is just right for us to tap an alternative source of funding at a time when we have a monetary policy squeeze and when CRR and interest rates are high. This will provide us with a way to sell less liquid realty assets to the AMCs.”

“The price of real estate is falling in pockets in the country today, and the funds will allow asset managers to negotiate to buy at cheaper rates and earn high returns,” Mr Pradip Sureka President, Confederation of Real Estate Developers’ Association of India, said. “The mutual funds will also provide investors a more stable avenue because exposure to realty assets is limited and they are less speculative compared to shares,” he added.

The real estate mutual funds will, however, see more investment directed towards retail and commercial projects rather than in residential projects, Mr Todi believes. “The funds will need continuous cash flow to yield steady returns to investors, which is possible only in rental assets and not in housing projects,” he added.

Mr Abhijit Das of JLL Meghraj, however, believes that investments will flow only into A+ category projects because of stringent evaluation done by professional rating agencies. “The whole real estate sector will become more structured and efficient in order to get qualified for the funding,” he said.

More scientific ratings will also bring more equilibrium to the sector bridging price differential across cities, Mr. Todi added.

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