Dimension Property

They say bureaucracy in India can be slower than the most patient snail. So, more than seven years after the proposal was first mooted, the Securities and Exchange Board of India (Sebi) came out with its draft guidelines for real estate mutual funds (MFs). This move has brought much joy and relief to the MF industry.

Now, the industry is out to convince domestic investors that the move could not have come at a more opportune time. In these volatile times, real estate acts as a good diversification option due to its low correlation with equity and bonds. Besides, retail investors can now invest in actual real estate projects with amounts as low as a few thousand rupees.

“Sebi’s move to launch realty MFs will not only foster diversification in the MF industry, but will also promote wider participation in the real estate sector,” says Vineet K Vohra, MD & CEO, ING Investment Management, a fund house that helps manage around $200 billion in various real estate projects around the globe.

Mr Vohra says the move will help bring the Indian market place closer to global norms. As for delivering returns, sample this… ING’s Global Real Estate Fund, which invests in shares of international real estate companies, emerged unscathed in the recent stock market turbulence.

The fund not only took the crash in its stride, but also delivered positive returns over the same time period. If you had invested Rs 10,000 separately in the BSE Sensex, BSE Realty index and ING Global Real Estate Fund on January 10, ’08, your investment would be worth Rs 7,900, Rs 5,500 and Rs 10,800, respectively , as on April 22, ’08. Sebi has given approval to two kinds of real estate funds. The first category is of real estate MFs, which will invest in real estate projects and mortgage-backed securities.

These will be closed-ended funds, listed on the exchanges. As their net asset values (NAVs) will be declared daily, investors will have the option to exit any day. So, you can now say goodbye to the old tradition of illiquidity in real estate investments. Real estate investment trusts (REITs, in short) constitute the second category of real estate funds.

These products are very popular abroad. The most common version of this class of funds allows an investor to earn fixed income like returns through rents of commercial properties . Most REITs are listed on the exchanges and have tax incentives for investors.

Put simply, REITs work like fixed income instruments (rents as coupons), while realty MFs will seek capital appreciation (like a stock price going up) by investing in properties. For years, real estate was synonymous with lack of transparency in transactions and absence of an index, making it difficult to track prices.

Various fund officials like ING’s Mr Vohra hope that the introduction of REITs in India will change all that. They are betting on such products ushering in greater liquidity to this asset class, as well as freeing up developer capital for further investment, changing the dynamics of the sector as well.

With the current real estate boom and no signs of any fall in demand for homes or offices, this may be the best time for investors to own a share of the lucrative realty sector. Real estate MFs and REITs offer the cheapest and most convenient way to do so. However, let’s hope that smoother legislative framework and a clear taxation policy will be put in place for these products, making them investor-friendly .

Owing to its direct connectivity with prime commercial destinations of Mumbai like Bandra-Kurla Complex (BKC), Kalina, CST Road, Jogeshwari-Vikroli Link Road, the real estate around LBS Marg is buzzing with activities. Both commercial and residential properties are selling like a hot cake in the region.

Not just LBS Marg, Mumbai properties around Ghatkopar, Powai, and Vidyavihar are also witnessing a strong surge in demand.

Availability of superior road infrastructure with linkage to Eastern Express Highway has further fuelled the growth in the belt and this has resolved the connectivity issues between Eastern and Western suburbs.

Furthermore, Sakivihar road connects Andheri, and from the Eastern Express Highway people can easily drive down to Airoli, Vashi, Ghatkopar, Chembur and Sion.

The real estate around LBS Marg is truly a quintessence of how infrastructure boosts property values in a market.

The first proposed metro rail coming up at the Versova-Ghatkopar route is one of the reasons for spur in real estate development in the region. The railway stations of Ghatkopar, Vikhroli, Kanjurmarg, Bhandup and Mulund are at a throwaway distance from LBS Marg.

Meanwhile, the IT and ITeS sector drives the commercial properties around LBS Marg. Finance, Banking and Management Consultancies and even premium hospitality majors are aggressively scouting for land around the LBS Marg belt from Ghatkopar to Thane.

Corporate majors like Wipro, Accenture, CapGemini, WNS Spectramind, ICICI Prudential, HCC, Colgate Palmolive, CIPLA, Johnson & Johnson have already set up their base in the region and quite an impressive demand is there for Grade A quality office space.

The property values, however, are still far lower than places like BKC, and this is something that is driving the demand curve in the area. According to sources, the lease rates here in this region are from Rs 50 to Rs 200 per sq. ft against Rs 200-Rs 350 per sq. ft of BKC.

For more details on Mumbai Property Prices, log on to magicbricks.com

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