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Topic : Real Estate value chain
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Real Estate Mutual fund by Jambu Iyer, International Property Consultant

Real Estate Mutual fund

By : Jambu Iyer, International Property Consultant
Keywords :

Mutual Fund

Real

Estate

RIETS

Activity:  2 comments  210 views  last activity : 07 06 2010 20:18:04 +0000
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REAL ESTATE MUTUAL FUND SCHEMES
For the benefit of our members, I have reproduced key extracts from SEBI Mutual Funds Regulations Amendment Act, April 2008 in connection with REMFs

Definitions
49A. For the purposes of this Chapter, unless the context otherwise requires- 1. "real estate asset" means an identifiable immovable property- 1. which is located within India in such city as may be specified by the Board from time to time or in a special economic zone within the meaning of clause (za) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); 2. on which construction is complete and which is usable; 3. which is evidenced by valid title documents; 4. which is legally transferable; 5. which is free from all encumbrances; 6. which is not subject matter of any litigation;
but does not include-7. a project under construction; or 8. vacant land; or 9. deserted property; or 10. land specified for agricultural use; or 11. a property which is reserved or attached by any Government or other authority or pursuant to orders of a court of law or the acquisition of which is otherwise prohibited under any law for the time being in force;2. "real estate valuer" means a qualified valuer of real estate assets who has been accredited by a credit rating agency registered with the Board.Applicability

49B. 1. The provisions of this Chapter shall apply to real estate mutual fund schemes. 2. Unless the context otherwise requires, all other provisions of these regulations and the guidelines and circulars issues there under shall apply to real estate mutual fund schemes, and trustees and asset management companies in relation to such schemes, except where specific provisions are made in relation thereto under this Chapter.Additional eligibility criteria

49C . 1. A Certificate of registration may be granted under regulation 9 to an applicant proposing to launch only real estate mutual fund schemes if he;- 1. has been carrying on business in real estate for a period of not less than five years; 2. fulfills eligibility criteria provided in regulation 7, except that specified in item (i) of the Explanation to clause (a) thereof:2. A real estate mutual fund scheme of a mutual fund registered under subregulation (1) shall not invest in the securities mentioned in sub-clauses (ii) to (iii) of clause (a) or in clause (b) of sub-regulation (2) of regulation 49E unless it has key personnel having adequate professional experience in finance and financial services related field. 3. An existing mutual fund may launch a real estate mutual fund scheme if it has an adequate number of key personnel and directors having adequate experience in real estate.Other conditions for real estate mutual fund schemes

49D. 1. Every real estate mutual fund scheme shall be close-ended and its units shall be listed on a recognized stock exchange:Provided that the redemption of a real estate mutual fund scheme may be done in a staggered manner. 2. The units issued by a real estate mutual fund scheme shall not confer any right on the unit holders to use the real estate assets held by the scheme and any provision to the contrary in the trust deed or in the terms of issue shall be void. 3. The title deeds pertaining to real estate assets held by a real estate mutual fund scheme shall be kept in safe custody with the custodian of the mutual fund. 4. A real estate mutual fund scheme shall not undertake lending or housing finance activities. 5. All financial transactions of a real estate mutual fund scheme shall be routed through banking channels and they shall not be cash or unaccounted transactions.Permissible investments

49E. 1. Every real state mutual fund scheme shall invest at least thirty five per cent of the net assets of the scheme directly in real estate assets. 2. Subject to sub-regulation (1), every real estate mutual fund scheme shall invest- 1. at least seventy five per cent. of the net assets of the scheme in- 1. real estate assets; 2. mortgage backed securities (but not directly in mortgages); 3. equity shares or debentures of companies engaged in dealing in real estate assets or in undertaking real estate development projects, whether listed on a recognized stock exchange in India or not;2. the balance in other securities;3. Unless otherwise disclosed in the offer document, no mutual fund shall under all its real estate mutual fund schemes, invest more than thirty per cent of its net assets in a single city. 4. No mutual fund shall, under all its real estate mutual fund schemes, invest more than fifteen per cent. of its net assets in the real estate assets of any single real estate project. Explanation: For the purposes of this regulation, "single real estate project" means a project by a builder in a single location within a city. 5. No mutual fund shall, under all its real estate mutual fund schemes, invest more than twenty five per cent of the total issued capital of any unlisted company. 6. No mutual fund shall invest more than fifteen per cent of the net assets of any of its real estate mutual fund schemes in the equity shares or debentures of any unlisted company. 7. No real estate mutual fund scheme shall invest in - 1. any unlisted security of the sponsor or its associate or group company ; 2. any listed security issued by way of preferential allotment by the sponsor or its associate or group company; 3. any listed security of the sponsor or its associate or group company, in excess of twenty five per cent of the net assets of the scheme.8. No mutual fund shall transfer real estate assets amongst its schemes. 9. No mutual fund shall invest in any real estate asset which was owned by the sponsor or the asset management company or any of its associates during the period of last five years or in which the sponsor or the asset management company or any of its associates hold tenancy or lease rights 
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2 comments on "Real Estate Mutual fund"
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  Commented by  Esha Johar, Risk Analyst, Irevna    | 08 07 2009 15:38:28 +0000 
Nice article Jambu.....Really very informative. Thanks for posting.
  Commented by  Padmanabhan R, Finance student    | 08 06 2009 18:30:08 +0000 
Investing through mutual fund is a good option in the case of real estate as they require huge investment and it is difficult to have effective diversification in the direct route.
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