The term real estate is defined as land, including the air above itand the ground below it and any buildings or structures on itthat are intended to be of a permanent nature. A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities
Investors Receive dividend/capitalContribute appreciationmoney Trust (pool of money) Receive interest, dividendInvest in or capital growthmarkets Markets (volatile, has fluctuation)
Real estate fund is a fund that buys, develops, manages andshells real estate assets and allows various participants smalland large to invest in a professionally managed portfolio of realestate properties.Like mutual funds, real estate funds are founded by a group ofreal estate professionals/experts to ‘manage’ property/realestate for the investor.
Benefits to the individual Protection from legalities Affordability Liquidity Increase in rental housing generation Expected to enhance the quality of the housing projects.
Benefits to the sector Flow of funds in the sector Sector will become more organized More credibility to the sector Availability of foreign investments Economic and social benefits Growth of real estate sector can boost the GDP Opportunities of employment
Cont… Growth of ancillary industries Help in the process of slum development Help in development of tourism Funds for the development of B & C grade cities Availability of funds to the government for infrastructure development It can also help in improving the penetration of mutual funds in India. REIS will also help to tap the investments from larger section of Indian Market
AffordabilityAge Old Acts and RulesGovernment AdministrationForeclosureHigh cost of fundsInformal SectorCompetitionLegal HurdlesConstruction Finance
Liquidity riskRisk because of high maintenance burdenRisk due to high government controlsRisk due to real estate cyclesRisk due to legal hurdles and complexityRisk due to lack of informationRisk due to high transaction cost thus formingbarriers to entry and exit
Internationally there are two structures, which real estate funds follow REMF STRUCTURE REIT Structure PMV StructureFollowed In USA and CANADA Followed In UKREIT is a corporate In this structure, the funds is instructure, which collects money the form of a trust and operatesfrom the investors and invests in just like an open ended mutualreal estate assets to earn money fundin the form of rentals and lease.
REIT Structure PMV StructureFollowed in USA & Canada Followed in UKClose ended fund Open ended fundUse leverage Does not use leverageAre listed on the exchanges Not listed on the exchanges
In April 2008, market regulator SEBI announcedguidelines for REMFsThere is a hot discussion floating in India about whichmodel the Indian market should adopt.Should it adopt the US structure or the UK structure orfollow an altogether new structure for a fund, whichinvest in Real Estate.
There is high chances that the real estate mutual fundintroduce in India. In India REMFs will follow UK basestructure with some changes. And the real estate area ismajorly advantages area for the inventors.