Real estate is a magic word in the investment world. Intelligent investors are adding real estate to there portfolio in a proper proportion to get handsome returns in a long run. Why real estate is so popular? And how a retail investor can have real estate investment exposure to his portfolio with an affordable amount or comparatively very less amount? These are the two major questions in front of us when dealing with real estate.
There is no doubt that real estate is booming around the world. Fund houses already focused to real estate with real estate specific funds and some eminent fund houses already started international real estate funds for there customers to have real estate as well as international diversification exposure. The word real estate not only means the physical form of investments but also mean the other possible forms. Example, investment in real estate companies are another kind of investment.
Why real estate investments are booming and becoming popular? Answer is already there in the previous paragraph. It is booming and the requirements are growing day by day. The major intention of intelligent investors focus to real estate investment is not only the earlier benefit but also the ability of real estate investments that can use a fantastic shield against rising inflation. It is a known truth that the growth in an economy naturally grab the inflation also up. Debt instruments are big losers in the inflation focused investment because of the inability to produce returns that match to the inflation rate. Real estate investments are the clear winner in this with the ability of producing inflation adjusted returns at any time. This is a major benefit.
How can an ordinary investor get exposure with real estate investments? Naturally this is the major doubt coming to us when reading about the real estate investment opportunities. Retail investors doesn’t have the required amount to invest in the real estate like big investors in this field. Is there any option form them? Yes there are. Small investors with limited capital can take a way of real estate funds as well as buying equities of very good real estate companies.
Real estate funds: Compare with other available funds, real estate funds operations are slightly different. In US, REIT’s (Real Estate Investment Trust) are formed as companies to invest in different kind of real estate or real estate related assets, including shopping centers, office buildings, hotels, and mortgages secured by real estate. You can read more details HERE.
In United Kingdom this activity done through “Pooled Managed Vehicles” or PMV’s. In India, Stock Exchange Bureau of India (SEBI) issued guidelines for fund companies to start real estate funds. Below are some key points to remember when dealing with Real Estate funds:
1. Real estate fund scheme will be worked as a closed ended scheme for 3 years. They can open fresh issues in each quarter and the NAV (Net Asset Value) is based on the time.
2. Redemption or repurchases shall happen in the staged manner at the end of 3rd year. This can be 30% of redemption/repurchase after 3rd years, 40% can be at the end of 4th years and so on.
3. This scheme should listed to stock exchange to provide the liquidity to the investors (point 2 influencing to this action)
4. NAV (Net Asset Value) for the scheme will calculate on quarterly basis as per the valuation5. This scheme shall operate within the regulations of Mutual funds and subjects to amendments.
6. Tax benefit to such scheme are par with other mutual funds.
7. Scheme can invest in Equity shares/bonds/ debentures of the listed companies which deal with properties and property developments. Scheme can invest is Mortgage-backed securities. These scheme can undertake or finance the properties like ready building to lease and the income from lease will consider as regular income and can distributed in investors in the form of dividends.
8. Real estate scheme can involve financing to direct estate projects, construction, purchase and option to purchase of buildings under construction with a view to sell it again. They can also invest to the debt securities issuing by construction and development companies
9. Real estate schemes can be started by mutual fund companies / Asset Management Companies under approval from SEBI and also should have the Offer Document as per existing regulations for mutual funds.
10. Under the restrictions, any investment in one corporate limited up to 10% of the corpus and investments on any properties owned and managed by sponsor limited to 25% of the corpus. Also, initial launch expense limited to 6% same as existing mutual fund regulations. There are investment restrictions based on a project, a promoter group and a geographical area to mitigate the concentration of risk of the investment portfolio.
11. There are registered valuers in the purpose of valuating properties held by real estate investment schemes.Above are the must have information for investors to invest in a forth coming real estate funds. Real estate are booming and same time the fraud activities also booming. Always remember to deal with approved companies and trusts to safe your investments.
Hope you enjoyed this article and it is able to provide all the must required information to you to enter to the future investment instrument.