May 06, 2008

With the Securities and Exchange Board of India issuing guidelines on real estate mutual funds, investors will have another instrument to park their funds.
However, financial experts are of the view that though REMFs are good for those who want to participate in the property boom, investors should not look at them as equity funds.
"Indian investors have in the past, entered products thinking they will reap rich rewards in the short term. As a result, they have suffered quite badly," said an investment advisor.
REMFs will operate in this manner. They will be closed-ended in nature. But by listing on the exchanges, the funds would give the investors an option to exit. The funds will invest in real estate and related assets as per Sebi’s norms. Investors will get units in return.
The units will be listed on the stock exchanges and net asset values will be declared on a daily basis to give the investors an indication about fund performance.
Since the real estate funds are closed-ended, they will list at a discount. "The closed-ended funds always list at a discount. However, they rise as the maturity approaches," said Hemant Rustagi, director, Wiseinvest Advisors.
This implies that players accustomed to investing in equities and booking profits when the market goes up may not be the right customers for such products. In fact, it would be a good idea to buy these funds after listing as they will be available at lower rates.
The funds are mandated to hold a minimum 35 per cent of their corpus in real estate assets. The remaining could be invested in mortgage-backed securities, real estate company stocks and shares of other companies listed on stock exchanged. Jai Mavani, who heads real estate at KPMG, said, "About 15 per cent can be invested in unlisted companies."
As Mavani puts it, to show regular returns, the bigger chunk of the REMF’s portfolio will be investing in regular income-yielding assets. This means mutual funds will buy properties such as office spaces, malls, hotels and hospitals and earn rental income.
The investors will have to use REMFs only as portfolio diversifiers and not as core investments. Nipun Mehta, CEO, Unitis Towers Wealth Advisors said that the investor needs to decide on the exposure to real estate. Moreover, the allocation should be made after considering the real estate owned in physical form by a person. One should invest in REMFs accordingly.
"The allocation to REMFs can be maintained at merely 5-15 per cent of the portfolio," said Mehta.

Industrial rentals: City one of fastest growing in Asia
EXPRESS NEWS SERVICE APRIL 28

It’s not just the real estate prices in Pune that refuse to go down, the city is also reaching for the sky as far as industrial rentals are concerned. According to a recently released Cushman & Wakefield report Industrial Spaces Around the World Pune recorded the second highest percentage growth in industrial rental values in the country in the last one year.
While Mumbai was the frontrunner with 94.44 per cent rise in a year, Pune grabbed the second position by virtue of a 50 per cent hike in industrial rent in Ranjangaon - from Rs 12 per sq ft in December 2006 to Rs 18 in December 2007. New Delhi came in third with IMT Manesar recording a 30 per cent increase.
Two other hubs in the city - Hinjewadi and Talegaon - occupied the seventh and ninth positions in the top 15 rankings in the country. While Hinjewadi rentals increased by 18.75 per cent, in Talegaon it went up from Rs 17 per sq ft to Rs 20 per sq ft.
Meanwhile, the list for top 10 industrial locations worldwide has Pune in the fourth position, while Mumbai tops the list. Istanbul in Turkey and Bogota in Columbia occupy the third and fourth rank respectively even as Montevideo in Uruguay stands fifth. Sao Paulo in Brazil, San Francisco in the US and Singapore make up the rest of the list.
"Pune is basically an industrial and educational city so the findings are not surprising. There are a lot of JVs being set up and all of them prefer leasing rather than outright purchase for the first couple of years till they know whether the merger is going to work or not. This has dictated the lease prices to a great extent. For instance in Ranjangaon John Deere presence is largely responsible for propping up the market rate," said Naresh Malkani, CEO indiaproperties.com."The rates need to stabilise to ensure the investments to the city keep flowing in," he said.
P Vasudevan, CMD Vascon Constructions confirmed that Pune does figure high in the rankings as far as industrial rentals are concerned. He added that prices have seen a greater escalation in the non-MIDC areas.
"The percentage increase in industrial rent in Pune is largely due to the huge investments in the city, not just in IT and ITes but also in the manufacturing and services sector. The use of industrial properties has gone up substantially be it SEZs, townships or the Pimpri-Chinchwad industrial belt. All these have propelled the price rise, which is good news for the city but will hit the smaller industrial units hard," said Sunjay Dutt, joint managing director Cushman and Wakefield.

Residential rates too on upswing
As far as residential rentals go, leasing activity, as against purchase, saw an increase in the last quarter of 2008 since end-users seemed to have adopted a more cautious approach and deferred their purchase decisions, say Cushman & Wakefield.
According to Malkani, luxurious apartments and bungalows have seen an amazing hike in rental rates. "But they are at their peak now. I don’t think they can go up further. There is a huge investor inventory that has flown into the market for all categories of homes making the supply match the demand, ""he added.
Dutt, nevertheless, predicts a buoyant lease market for residences the next two quarters fuelled by migrant executives, student population and corporates in Pune.