Housing Development and Infrastructure (HDIL), part of the Wadhawan group, has become the first company to seek regulatory clearance to launch a real estate mutual fund (REMF) in the country.
HDIL, India’s third-largest real estate player by market capitalisation, has set up a company called HDIL Financial Services to launch the proposed fund. While it is awaiting approval from the Securities and Exchange Board of India, it has started working on the modalities for the launch.
Financial services will be a new business area for the realty firm though the Wadhawans — in their individual capacity and through a group company — hold nearly 54 per cent stake in mortgage player Dewan Housing Finance Corporation.
In addition, they have interests in entertainment, broadcasting, power and oil and gas exploration.
HDIL has land reserves of 192 million square feet. A majority of its real estate activity is in and around Mumbai. “We have applied with Sebi to launch an REMF. We are simultaneously preparing for the product till the final approval comes. Once we get the approval, we will launch the mutual fund in three months,” said Ravi Sharma, chief executive of HDIL Financial Services.
Though Sebi issued the REMF guidelines in April, the interest so far has been muted. Most companies and mutual fund houses have said the norms lack clarity on calculation of net asset value (NAVs) and tax treatment. In addition, it is unclear how investment by overseas investors or non-resident Indians (NRIs) would be dealt with.
However, Sharma said, “We have a clear idea on NAV calculation and tax treatment of REMFs.’’ The NAV is to be declared on a daily-basis.
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An REMF is a scheme similar to a closed-end MF scheme, which will be listed on the bourses. REMFs can invest up to 35 per cent of the corpus in completed real estate assets and buy real estate-related securities, including bonds issued by property companies, mortgage-backed securities or in stocks of listed companies.
REMFs can also partner with real estate developers in a special purpose vehicle (SPV) for project construction. They are permitted to buy shares of an unlisted SPV up to a limit of 15 per cent of their corpus.
HDFC Mutual Fund and ICICI Prudential are planning to launch REMFs soon despite many asset management companies complaining about the norms.
Unitech Realty Investors, the asset management company of property developer Unitech, also has plans to launch REMFs once clarity emerges on the valuation and taxation issues, a company executive said.
An REMF can pump in more funds for property developers, which are facing acute credit crunch due to a rise in interest rates, volatility in the stock markets and a sharp drop in property sales, analysts said.