Skip to main content

Realty Funds: MYTH & REALITY

Ever since the Foreign Direct Investment (FDI) norms were relaxed for investments into the real estate sector, the Indian real estate market has been drawing the attention of foreign realty funds (i.e venture capital funds with a focus on investments in the real estate sector). These realty funds are essentially pooling vehicles that raise capital from a number of investors with a profit sharing model on returns.



The Indian real estate sector continues to be one of the most appealing investment avenues, despite issues such as land title, lack of rationalized stamp duty legislation and absence of specific tax incentives for realty funds. The government currently permits 100 percent foreign investment in companies engaged in the development of townships, housing, built-up infrastructure and construction development projects. However, such investment is subject to conditions contained in Press Note 2 (2005) which include conditions such as minimum built up space, minimum capitalization, lock-in period of three years, etc. There also exists a lot of ambiguity around some of the conditions contained in the said press note. Separately, under the existing exchange control regulations, no Indian company is permitted to raise debt from non-residents to be utilized for real estate activities.



Given the above constraints, realty funds which make investments into real estate companies in India invest only by way of equity or other instruments which are compulsorily convertible into equity, such as compulsorily convertible debentures or preference shares (as these are treated as FDI as per the existing policy). Under the existing regulations, pure play debt funds and mezzanine debt funds are not permitted to directly invest in real estate companies.



Another area of perceived disadvantage to the realty funds invested or wanting to invest in India is the absence of specific tax incentives for realty funds. Currently, venture capital funds investing in certain specific sectors including software, information technology, bio-technology, etc are eligible for tax relief on their income by way of dividends and long term capital gains. However, realty funds are not entitled to any such tax relief and therefore, invest either as normal investors and take benefit under the provisions of the tax treaties with Mauritius and other countries or have to rely on the normal provisions of tax laws to ensure single stage taxation.



Hitherto, the Indian real estate sector was not known to be an organized sector with good corporate governance and strict disclosure requirements. Real estate funds are good for the industry as they help in bringing organized money in this fragmented market and require the real estate companies to adhere to corporate governance and disclosure requirements.



Realty funds also provide real estate developers better access to competitively priced capital, particularly since banks are generally reluctant to lend to developers and in particular smaller and emerging players. Given the fact that a significant portion of the urban development in India is being undertaken by the private players, the presence of realty funds would boost the real estate sector in particular and the Indian economy at large. India, should take a leaf out of the book of some of the south Asian economies whose economies achieved sustainable high growth rates due to the real estate sector.

Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now