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Mumbai: India's booming fund industry is about to get even hotter with the launch soon of real estate mutual funds, which will make pricey property investments affordable to millions.
Only five per cent of Indian wage earners buy property as an investment, according to the Invest India Economic Foundation, as real estate prices are well out of the reach of many in a country where the per capita income is below $1,000.
Real estate funds, expected on the market within six months, will lower the entry barrier to about $120 and corner at least a 10th of the fund industry's assets by 2013, industry players say.
They will also create a more liquid secondary market for real estate assets at a time when banks have tightened lending and a steep drop in share prices has limited the scope for developers to raise funds through public offerings.
Although Indian property prices are cooling now, developers and fund managers are upbeat about the long-term fundamentals of the market, which has attracted big global banks such as Citigroup, Goldman Sachs and Morgan Stanley.
Potential
"It will have the potential to introduce a new set of investors," said Anthony Heredia, executive director at the domestic fund unit of Morgan Stanley. "It is a significant asset class globally so there is no reason why it can't become a significant asset class in India."
The country's stock market regulator gave the go-ahead for real estate funds late last month. They will be listed on stock exchanges, where the units can be traded like shares.
The funds must invest at least 35 per cent of their assets in physical property and the majority in property-related securities. Up to 25 per cent can go into other instruments.
Typical fund investors in India have tended to stick to local stocks, which have boomed in the past five years, and bonds.
Vineet Vohra, chief executive of ING Investment Management, part of Dutch financial services giant ING Groep, said real estate funds were an easy, affordable way to invest in property, with half the volatility of stocks and double the returns of bonds.
"The potential is tremendous," he said.
ING Investment Management, Morgan Stanley, Canara Robeco Asset Management, and Religare Aegon Asset Management, a joint venture of financial services firm Religare and Dutch insurer Aegon, say they are interested in real estate funds.
SBI Funds Management, HSBC Asset Management, Kotak Mahindra Asset Management and Franklin Templeton Asset Management say they too are exploring the option.
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