Of REITs and REMFs

Real Estate Investment Trusts (REITs) act as an affordable, broad and balanced way of investing in the property market. Looking at the investment needs of developers who are instrumental to infrastructural development in India, primarily on real estate front, Securities and Exchange Board of India (SEBI) issued some draft guidelines for REITs. It is understood that SEBI is also issuing revised guidelines on Real Estate Mutual Funds (REMFs) to enable retail investors to access the realty market.Real Estate Investment Trusts (REITs) are a practical way for all investors to invest in large scale, income producing, professionally managed companies that own commercial real estate. India is in the process of formulating definitive legislation for the introduction and smooth functioning of REITs. Once it is introduced, it will help individual investors enjoy the benefits of owning an interest in the securitised real estate market. The best benefit will be of fast and easy liquidation of investments.As per the draft regulations unveiled, the REIT should be in the form of a trust created under the Indian Trusts Act, and the trustees should be either a scheduled bank, trust company of a scheduled bank, public financial institution, insurance company or a corporate body.The main technical difference between REIT and REMF is, the former is mandated to distribute at least 90 per cent of the gains it makes in a year to those holding its units. Secondly, a REIT can invest only in finished projects and not those that are under construction. While REITs help you earn a regular income, REMFs give you capital appreciation too.A REMF is a scheme much like any other closed-end mutual fund scheme except for the fact that the new entity will invest in real estate. According to conditions laid by SEBI, it is mandatory for an REMF to invest at least 35 per cent of its corpus in completed real assets. The second investment condition of SEBI mandates that at least 75 per cent of the corpus should be invested in real estate or related securities. Under this, your REMF can also invest in 'under-development' properties.Apart from giving a big boost to construction activity, broadening the real estate market, and making real estate a more organized business activity, REITs may have other two long term consequences. It will be a major step in bringing the actual market rates of property in line with the registration basic values and will also facilitate market based price discovery for properties and financing the home purchases. With the entry of real estate mutual funds, builders will be hard- pressed to develop quality projects and leeway for sub standard construction practices will be considerably reduced. Real estate funds are expected to acquire real estate assets with quality blue chip tenants and focus on growing markets witnessing substantial urban development.

The Mutual Fund Industry is facing a slowdown

THE Indian mutual fund industry, which is already struggling to keep the net asset value (NAV) of its schemes ticking, has been dealt another blow. With stock prices plummeting over the past six months, fresh inflows appear to be drying up rapidly.Fund houses have seen the average assets which they manage — AUM in industry parlance, down by close to 11% in June, and marking the highest negative growth for the month of June since 2003. Earlier, in March this year, AUMs had registered a negative growth. Data released by the industry’s lobbying arm, Association of Mutual Funds in India (AMFI), shows that assets which local mutual funds manage have declined to Rs 543,000 crore compared with a little over Rs 600,000 crore during May. However, this figure does not include the AUMs of Sundaram BNP Paribas, ING, Taurus and BoB which is awaited. But even after the data from these fund houses is incorporated, it may not make a significant difference to the last month’s trend of a negative growth.Mutual fund industry officials have attributed the recent outflows to the redemptions seen in the liquid and liquid-plus funds. The decline on the equity front, however, is being attributed more to the sharp fall in valuations rather than redemptions. Fund managers have denied any pressure on heavy redemptions though they have asserted that net inflows in the equity schemes have come down drastically.The CEO of a large fund house said inflows were drying up, adding that it would be a challenge to woo investors, given the difficult macro economic environment. Their concerns are well evident from the numbers disclosed by the individual fund houses. Of the 29 fund houses that have disclosed their AUM, 24 have registered a decline in their asset base while two of them recorded a growth of less than 1%. ABN AMRO, Mirae Asset Management and DBS Cholamandalam have been the only fund houses to have recorded a positive growth. While Reliance continues to retain its position as the largest fund house in terms of size, its assets have also declined by over 8% to Rs 90,000 crore.

Insurance Density in India

There is a whole sector waiting to explode in India in the coming years.

Bio-toilets to be installed in trains

Union minister of state for railways R Velu told reporters in Tiruchi that bio-toilets would be fitted in 34,000 broad guage coaches over the next four to five years. The bio-toilets would separate the waste into solid and liquid. While the liquid would trickle down, the sludge would be collected in a chamber and would be broken down by bacterial enzymes. The model would prevent dumping of the waste on tracks. The Railways is also exploring a controlled discharge system.The efficiency of the system in trains where hundreds of passengers use toilets everyday is being studied.

BIAL's Second Runway cleared

BIA’s second phase of expansion as per the masterplan which envisages a second runway and a terminal block is slated to come up in the next 3-4 years. The company has got a consultancy firm to guide it on its expansion plans.BIA’s second runway, which is slated to come up on the south of the airport, had run in to turbulence as the approach path for landing aircraft was in line with the approach path of the Yelahanka air base’s runway. “We have obtained an NOC from the ministry of defence,” said Marcel Hungerbuehler, COO, BIAL. In respect to the UDF of Rs 675 (plus taxes) that the passengers will be charged after the airport completes three months, Brunner said: “In the next ten days we will submit the final audited cost of the project to the civil aviation ministry, after which a UDF will be decided upon. But for the airport to break even in the next five years, we need to charge UDF of Rs 675 for domestic passengers.” Currently, UDF of Rs 1,070 is being charged to international passengers.The UDF will help bring in confidence to the three promoters — Siemens Projects Ventures GmbH, Zurich Airport and L&T — to go to banks and raise debt for funding the second round of expansion.

Rs.200 Crore development plan for Shirdi

The Maharashtra state government has formed the Shirdi Development Authority to recast the Shirdi township on the lines of Tirupati. Infrastructure projects valued at Rs 200 crore in the temple town were cleared by the chief minister Vilasrao Deshmukh.The makeover plan includes the construction of a mall.The projects will be sponsored by the Shirdi Saibaba Sansthan Trust and the work was held up as the state law and judiciary department had raised objections. The L&JD department had said that Shirdi temple had a trust and could not fund infraprojects. Setting aside the issues raised by the legal mandarins, Deshmukh cleared the project. The earlier tenders issued by MSRDC, the implementing agency of these projects, had lapsed due to the L&JD’s objections.MSRDC’s managing director Satish Gavai said, ‘‘We will construct skywalks, footpaths, pedestrian pathways, multi-layer parking lots, ring roads and a bypass road for traffic, which will facilitate pilgrims.’’ MSRDC’s chief engineer Subhash Nage said nine gardens will come up in and around Shirdi. The multi-layer car park will be at least ten levels high and the skywalk around the temple will be around 6 km in length. Pedestrian pathways will be constructed around Pimpalgaon Road, ZP Road and Dwarkamai Road.Deshmukh said the project will give a further boost to the development of the holy town which is visited by lakhs of devotees every week. Last weekend alone, eight lakh devotees visited the temple.The MSRDC will widen and reconstruct around 25 kms of road in and around the town. At present, motorists have to use the Manmad-Ahmednagar road to travel to Shirdi. The bypass will reduce vehicular traffic in Shirdi.The work on Shirdi-Puntamba railway corridor is moving at a snail’s pace due to the monsoon. Connecting Shirdi with the rail network has been a dream project for Union railway minister Lalu Prasad Yadav. He is an ardent devotee of Saibaba.Railway officials said they will complete the 18-km line by January 2009. Shirdi Sansthan’s chairperson and local MLA Jayant Sasane said a businessman, Prem Daryanani has donated 50 acres of land to the Sansthan for setting up a knowledge city.

Now Bharuch may get an Airport finally

The Golden Corridor, stretching from Bharuch to Vapi, may be Gujarat’s industrial heart with investments of approximately Rs 80,000 crore and much more expected to come at Dahej and surrounding areas. And yet, the region does not have an airport, despite 100 passengers landing at the Vadodara airport daily, just to go to Bharuch.However, the wheels are finally starting to turn to revive an old project for an airport at Bharuch. Only last month, the state government asked the Bharuch roads and buildings department to acquire 300 acres of additional land to the existing 200 acres of land acquired way back in 1993 near Mandva village on National Highway-8, about 20 km away from Bharuch. After the land was acquired, a survey was conducted 15 years ago by a private company for the ministry of civil aviation, which concluded that the passenger flow here may be too thin to make the project viable.But, the new-found energy has come from the massive increase in investments here and an MoU signed between the state government and Bharuch Enviro Infrastructure Limited (BEIL) — a company jointly promoted by United Phosphorus Limited Group and Members of Industries Association — singed an MoU under Vibrant Gujarat Summit in 2006.BEIL director Ashok Panjwani believes that even a small airport will be a viable option today, given the increase in traffic. “We are keen to develop the airport and are considering buying two or three 50-seater aircraft ourselves and running them commercially. Also, industrialists and top executives will be able to fly down for quick visits,” he says. Sources, however, said that it may now be difficult to acquire land near the original site now as there has been a lot of development since 1993. It is possible that the government may have to look for a new site altogether.