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Saturday, Mar 12, 2005

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Retailers propose real estate mutual fund

Amit Mitra
Nirmal D. Menon

Mumbai , March 11

INDIA may soon have a new genre of mutual funds, if the efforts uncorked by the Retailers Association of India (RAI) succeed.

Instead of the equity market, the proposed fund would be investing in real estate development for the retail sector.

Although RAI has drafted a model for the proposed real estate mutual fund (REMF), it has a long way to go before it gets approval from the regulatory authorities. The REMF model has been structured on the lines of the Real Estate Investment Trust (REIT) of the US.

The concept has been successful in the US, where there are over 300 publicly traded REITs operating with total assets of over $300 billion. Basically, REIT in the US is a company that buys, develops, manages and sells real estate assets. "We have submitted the REMF proposal to the Ministry of Commerce last week and the response has been encouraging. The Ministry will now have to take up the issue with the regulatory authorities," says Mr Gibson Vedamani, RAI President.

RAI has in its fold some of the top names in the retail sector, including Pantaloon Retail, Pyramid, Shoppers Stop, Westside, RPG Retail, Globus and Viveks.

The REMF concept has been mooted with the cardinal objective of enabling retailers to raise money for expanding their retail businesses through real estate development. "Introduction of REMFs could be a positive move, as it would not only provide adequate capital (for retailers) to develop retail infrastructure, but also give investors an additional avenue for high-return investment," says Mr Gibson.

Basically, the proposed REMF will function like any other mutual fund, but, instead of investing in common stock or bonds, it would invest directly in property development or in the equity of real estate investment trusts. As per the model pieced together by RAI, the fund is proposed to be a close ended or interval fund, which could be open ended once liquidity picks up.

"We have also suggested that NAVs can be calculated on a quarterly basis and allow for redemption or fresh purchases. Investments can be made for buying and selling of real estate projects, apart from buying equity shares, bonds or debentures of listed companies dealing in property development," Mr Gibson explained.

Adds Mr Anuj Puri, Managing Director, Chesterton Meghraj, a Mumbai-based property consultant: "Investors buying these units can enter the real estate market for a small sum of maybe around Rs 10,000. This will also generate a lot of liquidity in this business. Return on investment will be anywhere between 10 to12 per cent in line with the current market yields."

A step in the direction of introduction of such a fund has already been taken by the retail chains, which are increasingly exploring the possibilities of launching venture funds to expand their retail businesses.

Pantaloon Retail (India), for example, is in the process of launching a venture fund with a corpus of Rs 250 crore, which would be utilised to buy retail property and development of malls. Other retailers are planning to unveil funds that will enable investors to receive secured debentures equivalent to the amount invested.

"Our expertise and experience in retail business have been able to generate adequate footfalls in our shopping malls. With this background, we can ensure that such funds are highly productive from the investors point of view," says Mr Kishore Biyani, CEO of Pantaloon.

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