The notification of the amended guidelines for real estate mutual funds (REMFs) by the Securities and Exchange Board of India (SEBI) enabling the launch of these funds presents multiple benefits, including enhancing the liquidity in real estate assets, increasing investments into real estate and widening the investor base.

The move has been widely welcomed by the developers and financial institutions. REMFs provide the retail investor the capacity to invest in real estate, which till now has been the preserve of the few with deep pockets, and brings more money into the market.

One indirect benefit is that it paves the way for cleaning up the system — the real-estate industry has traditionally been plagued by a lack of transparency in its working and speculative in nature.

Developers hoping to exploit this new source of funds would have to conform to the guidelines that demand clear title deeds and aboveboard payments — both grey areas now.

The guidelines also spell out the measures to protect the retail investor. It is on this account that the revised guidelines by SEBI have been two years in the making with the Institute of Chartered Accountants of India working on ways to arrive at a realistic and transparent pricing mechanism for real estate assets and units.

Under these conditions, REMFs provide developers additional funds and improves the liquidity of the immovable asset. Real-estate companies have till now had domestic funding and in recent years money from overseas sources.

Domestic funds have become increasingly tough to access with the Reserve Bank of India’s move to control liquidity and banks cutting back on exposure in real-estate investments. Overseas funds have been limited to large projects, which has left the major chunk of the industry untouched.

REMFs are seen as a relatively more accessible source without these limitations. The announcement coming at a time when real-estate players were anticipating a period of tight cash flows and poor liquidity is comforting to the industry.

The revised guidelines call for valuation of real-estate assets by accredited credit rating agencies every 90 days from the date of purchase, declaration of net asset value daily.

They enable existing mutual funds to launch REMFs ; new mutual funds can be launched by those in real-estate business for more than five years; the funds would be close ended with the units listed on recognised stock exchanges.

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