by THO
Several fractional ownership platforms have started the process of registering under SM REIT regulations within months of SEBI notifying the rules to govern small and medium real estate investment trusts (SM REITs) of income-generating and completed properties including commercial assets and rental housing.
Strata, India’s commercial real estate (CRE) investment platform, recently announced that it has plans to apply for the SM REITs license by the end of this month under the latest regulations issued by Securities and Exchanges Board of India (SEBI).
In 2023, SEBI had announced an introduction of Small and Medium REITs into the fractional ownership model (FOP), for all assets of over ₹50 crore.
“Our focus this year is to integrate eligible assets into SM REITs, bolstering investor trust and developer relationships to fortify our supply pipeline,” said Sudarshan Lodha, co-founder and CEO, Strata.
Strata will also initiate the migration of its eligible assets to SM REITs, as it aims to achieve a total assets under management (AUM) of ₹2000 crore by the end of FY25, the company said in a statement.
Strata is leading the fractional ownership ecosystem in the country with over ₹1,800 crore in transactions and AUM of over 4 million sq. ft. across Mumbai, Bengaluru, Pune, Hosur, Hyderabad, Chennai, Jaipur and Mehsana, the company said.
hBits, a fractional ownership platform, also plans to file the registration documents shortly and float the first offering within three months, its founder Shiv Parekh told HT Digital.
“We are targeting to be the first platform to launch an SM REIT. We are planning to file the registration documents shortly and float the first offering within three months. Currently, we’re working on the structure for the platform, but the goal is to be operational before the end of the six-month migration window set by the regulator,” he said.
The company’s plan is to offer SM REITs for new commercial assets in the range of ₹75 crore to ₹100 crore, he said.
The new commercial assets by hBits under SM REITS “are likely to be located in major cities like Mumbai, Bengaluru, or Pune. We will also migrate our existing properties that comply with the new SM REIT regulations to the new platform. This includes the current live property and an upcoming one. At present, we have 10 existing properties located in Mumbai, Bengaluru and Pune,” he said.
“We are also planning to identify and offer additional eligible properties based on the regulations. The overall goal is to double the assets under management from ₹365 crore to ₹1,000 crore by the end of the next fiscal year,” he said.
Another company, WiseX, plans to register under the SM REITs regulations in the coming months. “We are working closely with legal and tax advisors, merchant bankers and SEBI to work out the operational requirements of the regulations, apply for the registration of the license as well as migration of the existing assets,” said Aryaman Vir, CEO of WiseX.
“We aim to register and receive the license before the six months deadline and are actively engaging with legal/tax advisors around the same,” he said.
Integrated co-working firm EFC (I) Ltd plans to form an investment manager entity to manage assets and investments of SM REIT through a wholly owned subsidiary EFC Ltd.
The company’s board has approved a proposal to create a step-down subsidiary under EFC Ltd for acting as an investment manager to SM REIT, the company said.
“EFC REIT is in the process of incorporation, and an application before the SEBI will be filed within the next 3 to 4 months,” the company said.
The company has also forayed into sponsoring and managing a Category II Alternative Investment Fund (AIF), a Rental Yield Fund, to acquire premium commercial real estate and lease it as managed or serviced office spaces.
Umesh Sahay, founder and CEO of EFC (I) Limited, said, “With SEBI notifying amended regulations for SM REITs, investors can now own rent-yielding real estate assets by making a minimum investment of ₹10 lakh. The move will help enhance transparency and boost participation of both domestic and foreign retail investors, thereby leading to better liquidity in the market,” he said.
All about SMREITs
RRITs can now launch small and medium platforms (‘SM Platforms’) for ownership of real estate by retail investors. The SM Platforms can be started with a corpus of ₹50 crore, which can go up to ₹500 crore.
“Therefore, a bunch of retail investors can come together on an investment platform regulated by SEBI and make real estate investments through the fund. The minimum ticket size of the investment is ₹10 lakh,” explained Ajay G Prasad, Partner JSA Advocates and Solicitors.
But what about governance? How to make sure your money is managed properly? “Given that the SM platform now forms part of the mainstream REIT regulations, certain governance standards can be expected from the SM Platform. The SM Platforms will come under the regulatory supervision of SEBI,” he said.
How will the SM Platform invest the funds?
To make sure that the SM Platforms do not make risky bets, the law requires the SM Platform to invest at least 95% of the corpus in completed and rent-generating properties.
“This will protect your investments as under-construction properties can sometimes suffer from delays in handover. Except investments proposed into the ‘infrastructure’ space, there is considerable flexibility on what constitutes real estate assets for the purpose of investment. For example, the affordable housing sector is categorized as ‘infrastructure’ and not ‘real estate’ under the REIT regulations,” he said
SM Platform offers liquidity and market driven pricing in a regulated structure. This ensures that investors can exit in a regulated manner in accordance with the regulations, he said.
REITs versus SMREITs
In a typical REIT structure, the investor makes an investment in the broader REIT portfolio and has an exposure to all the real estate assets held by the REIT. The SM Platform framework has introduced a new structure whereby an SM Platform can create distinct and separate schemes for different real estate assets, he added.
