by THO
The Security and Exchange Board of India’s (SEBI) decision to notify Small and Medium Real Estate Investment Trusts (REITs) will provide a boost to the fractional ownership industry and safeguard investor interests, incorporating both commercial and residential properties within the new framework. It is also expected to boost the participation of domestic and foreign retail investors, said real estate experts.
Fractional ownership platforms are estimated to manage more than ₹4000 crore in assets under management or AUM. Fractional ownership permits individual investors to co-own commercial or residential assets as an alternative investment. Properties can be acquired through special purpose vehicles or through private limited companies.
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“Any regulated product comes with significant benefits for investors – uniformity, investor protection, fairness, transparency, and access to redressal mechanisms. As the firm that conceived FOP in India and the largest FPO platform, we are excited to see the new SM REIT regulations being notified and look forward to working with the regulator in making institutional quality real estate accessible to retail investors under a fully regulated regime,” said Kunal Moktan, CEO and co-founder, Property Share.
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The amendments made to the Real Estate Investment Trust (REIT) Regulations in 2014 aim to establish clear guidelines for the formation of Small and Medium Real Estate Investment Trusts (SM REITs). The new regulations will be called SEBI (REIT) (Amendment) Regulations 2024.
“Through these amendments, the regulatory body seeks to not only regulate and organize the fractional ownership segment but also enhance transparency in the sector. The introduction of specific regulations for SM REITs will provide a level of assurance to both investors and property owners, fostering trust and encouraging participation in these ventures,” Shravan Gupta, founder and CEO of YOURS, a platform for fractional ownership of luxury second homes.
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Shrinivas Rao, CEO, Vestian said, “SEBI’s notification to regulate small and medium REITs (SM REITs) is a welcome move for the Indian real estate sector. This will regulate the fractional ownership industry and safeguard investor interests, incorporating both commercial and residential properties within the new framework.”
The move is expected to boost the participation of domestic and foreign retail investors, and liquidity in the Indian real estate market as an initial offering for an SM REIT is mandated to have a minimum subscription amount of ₹10 lakh per investor, contrasting with the earlier norm where fractional platforms often required an investment of about ₹25 lakh, he said.
SM REITs are now allowed to gather funds starting from ₹50 crore by issuing units to a minimum of 200 investors instead of the earlier cap of ₹500 crore. This may bring a large number of income-generating small and medium real estate assets under the purview of REITs, he explained.
The notification on SM REITs was awaited for long and shall provide a huge boost to providing liquidity to granular holding of office yielding assets. This opens a plethora of opportunities across size and scale of markets and products to retail and institutional investors to invest in office yielding real estate. With a minimum size of Rs. 50 crore and minimum holding of 5% of investment manager, this isn’t a significant entry barrier for newer fund managers, however, key checks and balances have been provided by SEBI, said Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India.
“SEBI notification to the SM REITs regulations has come is just less than 3.5 months since the initial approval given by the regulator in setting up of SM REITs which clearly reflects SEBI’s confidence on the potential of the fractional ownership model in democratizing access of retail investors into real estate,” Shiv Parekh, founder and CEO, hBits.
This will act as a catalyst in enhancing market efficiency and increase awareness among potential investors about the benefits of this investment avenue and ensure widespread adoption, he added.
Being a pioneer of this fractional ownership model, hBits is also keen to be the first one to list our SM REITs thereby allowing our investors to make the most of this, he added.
