BANGALORE: Real-estate Mutual Funds (REMFs), or Real-estate Investment Trusts (REITs), are all set to enter the country to cash in on booming real-estate development and make available large funds for investment in housing related projects.

The plan to set up REITs/REMFs has been outlined in the draft National Housing and Habitat Policy 2005, circulated by the Union Ministry of Urban Employment and Poverty Alleviation.

"Through the pooling in of resources, REITs/REMFs will allow individuals with small amounts of cash to take advantage of returns available from the buoyant housing and real-estate market. Larger funds will become available for investment in housing related projects," the draft policy says.

Domestic mutual-fund players and investors are keenly awaiting the introduction of REITs/REMFs to tap this segment. The market regulator, SEBI (Securities and Exchanges Board of India), is soon expected to lay down a framework for the introduction of real-estate mutual funds. "The Association of Mutual Funds in India (AMFI) has submitted a draft proposal to SEBI on real-estate mutual funds. We will definitely float a mutual fund for real estate once SEBI announces the guidelines for the introduction of the scheme," N.R. Ramanujam, managing director, Canara Bank Investment Management Services Limited, the asset management company of Canara Bank-sponsored CanBank Mutual Fund, told The Hindu .

Innovative option

REITs/REMFs offer an innovative option for investors to buy and trade shares in the real estate sector and collect dividends from capital appreciation and rental incomes.

An REIT is basically a company that buys, develops, manages and sells real-estate assets, and allows participants to invest in a professionally managed portfolio of properties. The primary difference between an REIT and a real-estate company is that it is a pass-through entity which distributes the majority of its income cash flow among investors and saves tax at the corporate level.

REITs are generally classified into three broad categories — Equity REITs, Mortgage REITs and Hybrid REITs. A majority of the REITs in the U.S. fall under the equity category, where an REIT invests and owns properties and earns from their disposal and rentals. Mortgage REITs deal in investment and ownership of property mortgages. Hybrid REITs employ a combination of both strategies.

"To tap the booming real-estate sector in India, the introduction of REITs/REMFs seems to be a plausible option with the requisite tax and regulatory structures," a senior official with the National Housing Bank said.

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