Back-Door Entry

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[NEW AVENUES: The REMFs will be closeended and listed on stock exchanges (Pic by Subhabrata Das) In giving the green signal for real estate mutual funds (REMFs), stockmarket regulator Sebi has opened the doors for foreign funds to invest in real estate. RBI and the Ministry of Finance had stemmed the flow of foreign funds into real estate to prevent inflation and control the spiralling cost of land. But now foreign funds can subscribe to REMFs, despite the amendments made by Sebi in its existing mutual funds regulations that have stringent checks and balances on REMFs. Allowed to invest only in ready realty properties, REMF schemes will be closed-ended and listed on stock exchanges. These schemes have to invest minimum 35 per cent of the corpus in completed physical realty properties, and the balance in equity or debt of listed or unlisted realty companies and mortgage-backed securities. As REMF schemes can go up to 100 per cent in physical realty, it has opened the door for FIIs and NRIs who are allowed to invest in domestic MFs. Under existing FDI norms, they can invest directly but only in properties under development. &ldquo;If a lot of money chases few investment-grade real-estate assets, it could lead to a spurt in prices and the affordability index could go for a toss,&rdquo; says Jai Mavani, executive director at KPMG. Existing mutual funds are not rushing in to file REMF scheme offer documents with Sebi. &ldquo;When the first one takes the plunge, others copy its offer document and launch their schemes,&rdquo; says a senior official at a domestic mutual fund. (Businessworld issue 6-12 May 2008)