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New norms for real estate MFs soon

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BOOM TIME: Venugopal N. Dhoot (left), President, Assocham, and T. C. Nair, wholetime Member, SEBI, at a conference in New Delhi on Friday.
BOOM TIME: Venugopal N. Dhoot (left), President, Assocham, and T. C. Nair, wholetime Member, SEBI, at a conference in New Delhi on Friday.

Special Correspondent

Only venture capital funds are now allowed to issue these instruments to HNIs

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States to resolve stamp duty issue

NEW DELHI: The Securities and Exchange Board of India (SEBI) on Friday said it planned to come out with guidelines on real estate mutual funds (MFs) in the next 15 days to enable retail investors as well to access the realty market which had witnessed a boom in the last few years.

“SEBI is ready with guidelines on real estate MFs that can be issued any day. The outer time limit to issue guidelines is 15 days,” SEBI whole-time member T. C. Nair said while talking to the reporters here.

Addressing a conference on real estate mutual funds, organised by the Associated Chambers of Commerce and Industry of India (Assocham), he said all legal issues, including accounting and valuation, had been resolved and norms could be issued anytime.

The SEBI board had already given its nod.

A real estate mutual fund (REMF) has investment objective to invest directly or indirectly in real estate property and should be governed by the provisions and guidelines under the SEBI (Mutual Funds), Regulations, 1996. Assocham President Venugopal N. Dhoot had observed that only venture capital funds were now allowed to offer real estate funds to high net worth individuals, institutional and global investors.

Under SEBI regulations, individual investors in a REMF must invest at least $11,500, but the current players have set minimum contribution at far higher levels.

Mr. Nair responded by saying that earlier the Institute of Chartered Accountants of India (ICAI) had raised some objections to these funds and those had since been resolved.

Welcoming the decision, Association of Mutual Funds in India (AMFI) Chairman A. P. Kurian said, “There is huge potential for the real estate mutual funds market, and once the guidelines are issued, fund houses can come out with close ended interval funds.”

Even as the real estate funds set up to invest only in India have already raised modest sums, Merrill Lynch forecasts that the Indian realty sector will grow to $90 billion by 2015. The venture capital arms of HDFC, Prudential ICICI, Kotak Mahindra, IL&FS, Kshitji Venture have such products, but only for big investors.

On the question of the declaration of the Net Asset Value (NAV) of REMFs, the AMFI Chairman said the fund houses would decide whether the NAV would be made public daily or at an interval.

On high stamp duty in the real estate sector, he said the industry would have to follow the law of the land. It is a complex issue to be resolved by the States.

There was consensus at the conference that SEBI would have to issue “clear guidelines on the valuation of assets to ensure credibility of the products” among retail investors.

Incidentally, the Reserve Bank of India too has warned on potential asset-price bubble considering strong demand for housing and buoyancy in real estate prices in an environment of non-transparency.

Mr. Nair said the market regulator was keeping a close watch on the stock markets to ensure that everything was going well and to safeguard the interests of retail investors.

However, he added, “Whenever there is large growth there are problems... SEBI is keeping a close watch on the (stock) markets.”


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