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Investing In Realty Via Structured Products

Realty had a reality check when it melted furiously and was brought to realistic levels. Its now back in the limelight, with demand picking up slowly. When there is a dearth of buyers, products get the much needed innovative streak and this is what happened. Structured products in this sector have hogged the stage for some time. A quick rendezvous on how they work and whom they suit.

WHAT IS A STRUCTURED PRODUCT?

Typically, structured products are pre-packaged investment strategy across different asset classes --- equities, derivatives, debt, real estate and so on. They are best suited for high networth individuals (HNIs), wherein the minimum ticket price is significantly high. Normally, it is upwards of Rs 50 lakh.

Today, financial institutions offer much lower entry options, with the intention of widening their target market.

Often, real estate investments are known to provide quick capital appreciation. However, this product adds a new perspective to this line of thought. It gives guaranteed returns in the form of interest or rental yield, with capital appreciation as a bonus or an add-on benefit.

PROCESS OF INVESTMENT

Since structured real estate invests in physical property, one may be able to avail off a home loan or a commercial loan. The regular monthly income will ease the equated monthly installment (EMI) burden significantly, compared to any other property.

Real estate products are meant for the long term and such investment opportunities are for those with an investment horizon of three years or more.

Most options allow for registration of the property. However, some may not require registration. And helps you save on the cost involved in it.

REAL ESTATE FUNDS VERSUS STRUCTURED REAL ESTATE

Real Estate Investment Trusts (REITs) are very popular in the United States. REITs are corporations which propose to invest in real estate. They come with an in-built clause that 90 per cent of their income will be ploughed back to the investor.

Such trusts are yet to take shape in India. They have been awaiting approval from the Securities and Exchange Board of India (Sebi) for a fairly long time. In 2008, it was heard that REITs may get the approval from Sebi. However, when the real estate crashed due to the slowdown in the real estate market, REIT plans were put on the back burner.

Real Estate funds first took the form of Real Estate Portfolio Management Services (PMS). In these instruments, one proposed to invest in multiple projects --- commercial and retail --- and dabbled hard to manage risk and provide potential upside. But, the mechanics were complex and the timing of most of these funds were not good.

The operational costs of evaluating these projects and documentation took a toll on the returns passed on to the end investor. The structure also made it more of a financial asset and not so much of a real estate asset, thus taking out the flexibility and comfort it could offer to the investor.

This may pave the way for structured real estate, to come up with the best avenues in the financial products markets, giving a regular income. And investments can be recouped over a period of time, with the option to be able to buy back after a stipulated tenure.

OPPORTUNITIES IN THIS SPACE

The number of real estate investment products are on a surge. They offer varied types of payout structure. Some come with guaranteed return and some others give guaranteed return and potential upside, with others looking only at a profit sharing model.

Structured real estate can be in the form of studio apartments, service apartments, commercial property, holiday homes, resorts, hotels and so on. These products provide immense opportunity Real estate, in the past has

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