News: Indian real estate: New route for investments'

(BL 16/06/2006) Mumbai - The time to unveil real estate funds in the Indian markets has arrived as investors are ready to `lock-in' to realise the full potential of their investments.

The need to consider challenges while foraying into real estate funds was highlighted at the Mutual Fund Summit 2006 organised by CII.

Real estate funds globally have a huge potential market and India being a growing domestic market, real estate funds are the new route for investments. Milind Barve, Managing Director, HDFC Asset Management Co Ltd, said that the non-existence of an exchange, proper regulations and problems related to price discovery, settlement and liquidity would be of prime concern while dealing with real estate funds.

Since real estate funds involve physical assets, their valuation process becomes difficult. Barve suggested that the valuations be done at least quarterly from the date of purchase. Also, a panel of pre-approved valuers should do the valuations, and every fund should use at least two of these valuers. Disclosures of valuations need to be done, he said.

Real estate funds should essentially be close-ended funds as real estate is not liquid funds and a heavy exit load needed to be charged so that people stayed in.

"The key to garnering profits for real estate funds was diversification the risk of `concentration,'" said Barve. The funds need to be diversified geographically, in different projects as well as in different developers.

The low level of investor knowledge coupled with the dependence on tax sops could also affect returns, he said.