INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

REALTY MFS ONLY FOR RESIDENTS

   INDIAN investors may get to take an exposure to the real estate sector with the government and the capital markets regulator set to approve norms for allowing realty mutual funds. Foreign investors may, however, have to sit out for a while given the concerns expressed by the regulators and the government of an asset price bubble building up.

Some private banks have sought a clarification from the Centre whether they can sell units of real estate funds to foreign entities such as FIIs and NRIs.

Although interest in the country's property market has soared over the last year or so, there has been resistance, especially from the banking regulator on further opening up the sector to investment from overseas investors including venture capital funds. The logical course to adopt, policy managers reckon, is to allow local mutual funds to invest in real estate — after incorporating adequate safeguards relating to investment norms. The plan is to allow MFs to invest in real estate projects conforming to certain norms and also in firms which are in the sector.

Sebi has now informed the government that the entry of MFs could be allowed into real estate without resorting to legislative changes. The proposal to allow real estate MFs will be considered for approval at the next board meeting of Sebi, officials said.

However, the issue of allowing foreign venture capital funds to invest in real estate may remain on the backburner for some more time. Investment proposals aggregating $1 billion are pending after RBI raised objections saying that Sebi approval to the funds was not in consonance with the government's FDI policy on real estate. 100% FDI in realty is allowed under specified conditions. So, allowing foreign entities to subscribe to real estate mutual fund units could be akin to FDI without the necessary norms being followed, say sources.