REIT: A new dimension to real estate investing - Part I

The article got published on MagicBricks.Com, and can be accessed at: here.

Wished to ride the real estate wave for harvesting better returns but have been put off by high real estate prices in India? Introduction of Real Estate Investment Trusts (REITs) in India could open up new avenues for you.

Traditionally, an investor intending to venture into real estate would scout for the best residential or commercial properties with an intention of growth or regular income from the real estate investment.

For majority of investors, rising real estate prices have put them out of the market. This adds on to the fact that the investment would also be limited to one or two properties, and thus in this case a ‘Real Estate Portfolio Management’ can not be executed in the truest sense. On the other hand, consider the case where you have invested in a real estate project in Noida, and the land on which the project is being constructed comes under dispute between landowners and builders (like the case in Noida extension). With Real Estate Funds, your investment is not placed into one single project and hence your investment basket is protected.

There is a silver lining amid these high real estate costs. The answer lies in Real Estate Mutual Funds (ReMFs), ReITs and Real Estate PE (Private Equity) funds. The real estate investment scenario got a drastic change with the sector getting opened for Foreign Direct Investment (FDI) in 2005.

While ReITs & ReMFs will take some time to get structured in India, Real Estate PE funds have already made their way in the said space. Some of the funds active in the market include Tata Realty and Infrastructure, Indiareit Fund Advisors, HDFC Real Estate Fund, ICICI Venture; ASK Property Investment Advisors, ArthVeda STAR Fund from DHFL and Kotak Realty Fund.

What are ReMFs and ReITs, and what differentiates one from the other?
ReITs are popular and prevalent in developed markets. They are listed on stock exchanges and governed by transparent norms. ReMFs invest in commercial properties and own them. They make gains by renting out or selling their holdings; like mutual funds and share profits with investors.

Real estate PE funds are, however, different. These funds invest in real estate projects by tying up with the developer, wherein the developer sells a portion of the project to the fund. Some funds tie up with companies also. These funds are primarily for HNIs, for real estate investment purposes.

The PE advantage: PE takes care of all the due diligence required for selecting the properties to invest into; and there is a specialised team that does the valuation, assessment and screening before investments can be committed to the project. Moreover, investors’ amount is spread out over multiple properties, so that diversification plays out well over here.

Rajat Dhar, Managing Partner, Cogent Advisory

The article got published on MagicBricks.Com, and can be accessed at: here.

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Avoid Bank Planners, says Law Firm

Indian investor has been at the receiving end, when it comes to their wealth being managed by banks. SEBI accepted that there have been a rampant mis-selling of financial products at banks, and the same was mentioned by SEBI in their Wealth Management Guidelines dated 28th June 2013. 

Based on their observation SEBI came up be the Wealth Management Guidelines for banks and Investment Advisor Guidelines for Independent Financial Advisers. But there is a long way to go as far as Indian Investment Management industry is concerned.

Australia, which is one of the mature financial & wealth management market, with a well defined wealth management process being followed and adequate consumer protection mechanisms in place; has come across a couple of cases of Investor grievances. This has again brought into limelight the fundamental factor that mars the wealth management, when practised by the bankers.

Maurice Blackburn, a law firm, has urged consumers to avoid taking advices from the financial planners employed by the banks. To this, the Principal John Berrill added that major banking institutions wanted to keep their money in-house. You can access details of their observations here, click here.

You, an investor and a saver, can very well identify with this logic clearly due to the fact everytime your banker visits you, he speaks about the Insurance based investment. This results into clients' money being rotated within the sister concerns of these financial institutions and banks, apart from the hefty commissions that banks make on the sale of insurance products (say ULIPS).

What an investor needs is a financial adviser and not bank relationship manager. The reason is quite simple; as the role of financial adviser is to provide the best possible investment alternatives available in the market to the client, alongside the ease to transact and management of the portfolio. Since, a financial advisory & wealth management firm is not a part of any banking group, so it is not limited in the types of product lines available or the platform. On the other hand, it has been observed that the bank has a very limited investment options to address the wide range of  financial requirements of its clients.

The current wealth management set up at banks in India, is marred by conflict of interest; where by bank makes earning everytime the client's portfolio is churned. The portfolio is to be managed as the goal based portfolio and not transaction portfolio.

What is the way out for the clients...?

Simple, go and find a good financial adviser for you & your family; so like you are working to build the corporation you are employed at, so will your adviser build & manage a robust financial portfolio for you and your family.

You can read more about us here.

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Pointers On Real Estate Bill Passed By Cabinet.

Finally, much awaited bill finds an approval with the Cabinet. It is beter late than never, wil real estate customer woes being over for now. Atleast, the process has been sent in motion.

The Union Cabinet approved the bill to set up a regulator for the real estate sector with provisions for jail term for the developer for putting out misleading advertisements about projects.

Here are 10 things you need to know about the bill:

The Real Estate (Regulation and Development), Bill 2013, seeks to make it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities.
It also has provisions under which all relevant clearances for real estate projects would have to be submitted to the regulator and also displayed on a website before starting the construction.
 

The proposed legislation has certain tough provisions to deter builders from putting out misleading advertisements related to the projects carrying photographs of actual site. Failure to do so for the first time would attract a penalty which may be up to 10 percent of the project cost and a repeat offence could land the developer in jail. Moreover, any false advertising implies that buyers will get full refund of the money deposited with interest.
 

The bill also seeks to make it mandatory for a developer to maintain a separate bank account for every project to ensure that the money raised for a particular project is not diverted elsewhere. According to a CNBC-TV18 report, developers have to keep aside 70 percent of the buyers’ funds in a separate bank account to ensure timely completion of projects. The buyers are entitled to full refund with interest in case of delay in projects.
 

The proposed legislation provides for clear definition of the ‘carpet area’ and would prohibit private developers from selling houses or flats on the basis of ambiguous ‘super area’.
 

Under the proposed new law, builders will be able to sell property only after getting all necessary clearances. Registrations of projects with the regulatory authority is a must. This means developers cannot offer any pre-launch sales without the regulatory approvals. Moreover the authority must approve or reject projects within 15 days.
 

Developers will also be barred from collecting any money from buyers before completing all necessary permits to start construction on the project.
 

Builders cannot take more than 10 percent of the advance from buyers without a written agreement.

The bill also seeks setting up of a real estate appellate tribunal for adjudicating disputes. The tribunal will be headed either by a sitting or a retired judge.

 
It also suggests setting up of a national advisory council to be headed by housing minister Ajay Maken to suggest ways to advise the regulator on crucial matters.

Now, much of the transparency will come into the system that was long due. 

We are following up and keeping track of developments. Stay connected for the updates.

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