Sebi hints at real estate mutual funds

Housing Development Finance Corporation (HDFC) and few others have already made out a strong case for allowing real estate mutual funds arguing that the move would channelise small investments into the housing sector. The Government had so far opposed such a decision apprehending that the vital housing sector may be subjected to increased speculation.

However, the Sebi chief seems to have thrown his weight behind the opening up of the housing sector to the mutual funds industry. “The argument that mutual funds could lead to speculation in the real estate market is not borne out of facts. Speculation in the developed markets where such a thing is permitted is not more than that in India,” Mehta said. He said speculation in Mumbai real estate market is more than in London.

The Sebi’s initial step towards investment by mutual funds in securities is backed by safety mechanism. The investment by mutual funds in these securities will be allowed only if they have credit rating not below the investment grade and represent investment in real estate mortgages and not directly in real estate.

Sebi said these securities backed by financial assets (housing loan receivable) and underlined collateral of physical assets are considered comparatively safe and are unlikely to be vulnerable to short-term fluctuations in financial environment in view of their long-term underlined mortgages.