News: Indian realty fund foundation laid

(TT 27/06/2006) Mumbai - You can finally afford to own a pie of the best properties in the country without burning a hole in your pocket.

The Securities and Exchange Board of India (Sebi) today approved the long awaited guidelines for real estate mutual funds. Such schemes will invest directly or indirectly in real estate properties.

Under the guidelines, the schemes can invest directly in real estate properties within India. They can also invest in mortgage or housing lease-backed securities, equity and debt instruments, including bonds and debentures of listed or unlisted companies which deal in properties and also undertake property development.

Apart from real estate securities, the schemes can also invest in other securities. The units of such schemes, which will initially be close-ended, will be compulsorily listed on the bourses and net asset values will be declared daily.

The schemes will be governed by Sebi (mutual funds) regulations and necessary amendments will be made to the guidelines therein.

A Sebi-registered custodian shall be appointed by the funds, who will safe keep the title of real estate properties held by such schemes.

Sebi has also marginally tweaked the guidelines for venture capital funds and foreign venture capital investors for shareholding in a company prior to an initial public issue.

Such pre-issue shareholding shall now be exempt from lock-in requirements only if the shares are held by them for a period of at least one year at the time of filing of a draft prospectus with Sebi.

According to Sebi, this would help to ensure only such venture funds, which have long-term interest in the company, are allowed to get the benefit of the exemption from requirement of a lock-in as intended by the Sebi (disclosure and investor protection) guidelines.

According to the guidelines, while the promoter’s pre-issue shareholding is subject to a lock-in of one year from the date of allotment of public issue, venture funds are exempted from it.

However, the restriction on venture funds is similar to that for the pre-issue capital with the board of the company. Shall we now witness a slew of real estate mutual funds? “This is a significant step. However, there are many technical and operational issues, which will evolve from here,” said Dhirendra Kumar of Value Research.