Realty MF norms on cards

Likely to suggest quarterly disclosure of NAV.

The guidelines for real estate mutual funds (REMFs), which are being worked out by a panel appointed by the Securities and Exchange Board of India (Sebi), are likely to suggest quarterly disclosure of net asset value (NAV), besides putting an investment ceiling based on individual projects, developers and even locations.

The quarterly disclosure of NAVs is a step-down from the regulator’s earlier stand that REMFs should disclose their NAVs every day.

Sources said the domestic market could see the launch of the first REMF by the end of this calendar as the sub-committee is in the final stages of preparing detailed guidelines for the purpose.

“The guidelines could be out by the end of the third quarter,” a top mutual fund executive said.

He added that even though the launch has been delayed following recent policy changes, all newer issues, including land and property valuation and other regulatory disclosures, will be addressed in the final guidelines.

Last June, the Sebi board had cleared the basic norms for REMFs, stipulating that such funds would initially be close-ended and units compulsorily listed on stock exchanges.

The Sebi committee is also of the view that valuation of properties should be done by qualified experts such as chartered accountants.

Analysts point out that valuation of property will be a key issue before launch of REMFs. “For valuing assets such as property, no value parameter is available. That has to be set up by creating a comprehensive database.

They even have to accommodate recent Sebi guidelines on realty IPOs,” said Ajit Krishanan, partner, Ernst and Young.

The committee is also discussing investment regulations that will spell out per project investment limits, location specific limits and developer specific exposures. These norms are on similar lines as those specified for equity-oriented mutual funds.

Globally, REMFs are known as Real Estate Investment Trusts (REITs). “Globally, REITs are being traded 5 to 10 per cent below their asset value since they are not properly valued,” says Graham F Chase, president of The Royal Institution of Chartered Surveyors (RICS).

This will also be the case in India owing to the illiquid nature and close-ended structure of the funds, a local fund manager said.

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