Shobhit Agarwal, Joint MD - Capital Markets, Jones Lang Lasalle Meghraj:
To begin with, REMFs are the Indian avatar of the international REITs platform, adapted to the existing Indian mutual funds platform. As for their potential in the current context - while everybody is now working on entry and creating assets, the important question of who will buy these assets to provide an exit to the developers / investors needs to be addressed. The leveraging allowed in case of Indian REITs is the lowest (at 20 per cent of the value) compared to 35 per cent in case of Malaysia, Hong Kong, Singapore, and Taiwan and 200 per cent in case of Korea. This could result in a lower yield - and because it is not really leveraged, the risk taken is also more.
We believe a product like this should be more for low-risk–low-return investors, or most suited for risk-averse investors. This, coupled with the income distribution tax under Section 115R of Income Tax Act, would further hurt net income and returns of the investor. On the tax front, there is no clarity on the tax rate under section 115R. Also, the new guidelines issued by SEBI lack clarity on whether non-resident / foreign investor can invest in REMFs. Given the scale of asset creation, we believe that the amount required to provide developers / investors with an exit route would be enormous. With foreign investors not allowed to invest in constructed property, we would need to evolve ways and means for large pension funds, endowment funds, etc to invest in Indian properties – either directly or through REMFs.
All said and done, structured products would be more viable for conservative investors in the current context.
Dr Devinder Gupta, CMD, CENTURY 21 India:
With the formation of a stable government at the Centre, the realty sector has a high expectation from the new government.
Fortunately, the sentiment part which has contributed significantly to make the market depressed in last FY 08-09 is now reversing and is reviving on optimistic side. These sentiments have a huge impact on the level of consumer confidence and reviving of market. This has been reflected in report coming from different cities showing revival of real estate transactions. However, there is no significant change in the fundamental of the real estate sector as higher interest rates, cumbersome procedure for restructuring to loan, stringent regulation for FDI and FII’s in real estate sector, non infrastructure status, low fiscal incentive, no regulatory body are some of the factors which are still crippling this sector. This requires special emphasis in the forthcoming budget to see the real estate market starts reviving.
Real Estate Investment Trust and Real Estate Mutual Fund can push the market up, provided the bottle neck problems in terms of fundamental deficiencies are well addressed. So these two institutions can supplement the efforts of reviving if accompanied by fundamental push.
Abhijit Verma, chief management advisor, SNG Developers:
Yes, both these tools will help the industry to recover faster from the current slow down.
Internationally both of these practices are very common and people use it quite widely, as REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or through mortgages. It also receives special tax considerations and typically offers investors high yields, as well as a liquid method of investing in the realty sector.
There are two forms of REITs, one of them is Equity REITs, which primarily invests in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents. And another is Mortgage REITs that deal in investment and ownership of property mortgages. These REITs loan for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. The revenue is generated primarily by the interest that they earn on the mortgage loans.
An REMF is a mutual fund for real estate assets. In other words the asset management company (AMC) invests in a range of real estate assets around the country and creates a fund based on those assets. Investors can buy shares in those funds, which are traded on a daily basis on stock exchanges. The value of the shares depends on the value of the underlying real estate assets.
If the sector needs quick money, these funds are liquid assets, which can be sold conveniently. The flexibility of investment will offer a great sense of confidence as they can liquidate their investment faster than the physical assets. Today, these new elements will add new avenues and we have to open a new window for a fresh and new practice to regain the confidence and the pace.
Tanuja Rai Pradhan, national head - research & business analytics group, Cushman & Wakefield India:
The realty sector has been affected by declining asset values and inaccessibility of funds for over a year now. The government has introduced various policy measures to instill confidence among the investors. Some of these initiatives involve increasing transparency and bringing structural changes into the property market. Towards this end, the guidelines for Real Estate Mutual Funds (REMFs) were formulated last year, but the bear run on the stock market had forced a delay of their introduction. The SEBI is currently working on the guidelines in the backdrop of an already increasing investor confidence triggered off by recent rises in the stock market. The entry of REMFs to India is expected to ease the capital position of developers, provide retail investors with an alternate investment option, as well as increase transparency, accountability and tax efficiency across the sector.
Source:ExpressEstates.in