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8th March, New Delhi, India: The Securities and Exchange Board of India (SEBI) has recently implemented laws for Small and Medium Real Estate Investment Trusts (SM-REITs) to improve transparency and encourage investments in India’s real estate sector. These policies seek to establish structure and oversight in the fractional ownership market, while simultaneously safeguarding the rights of investors and creating opportunities for investment in the real estate sector.
-SEBI’s SM-REIT Regulations: The Securities and Exchange Board of India (SEBI) has implemented regulations for Small and Medium Real Estate Investment Trusts (SM-REITs), aimed at enhancing transparency and safeguarding fractional ownership investments in India.
-Lower Investment Threshold: SEBI has reduced the minimum investment requirement for SM-REITs to Rs. 10 lakhs, making fractional ownership more accessible to a wider range of investors with limited capital.
-Enhanced Protections for Investors: The regulations prioritize investor protection through clear guidelines on rights and responsibilities, minimum holdings by investment managers, and access to grievance redressal mechanisms.
-Boosted Growth and Confidence: The framework is expected to foster the growth of the fractional ownership industry by bringing in more retail investors, increasing liquidity in the real estate market, and enhancing investor confidence through increased regulation.
Fractional ownership is an innovative investment model that enables individuals to jointly own commercial or residential properties as an alternate investment opportunity. Investors have the option to acquire a portion of a property instead of buying the full property. This is usually done through special-purpose vehicles or private limited corporations. This strategy offers investors the chance to diversify their portfolios and have exposure to the real estate industry with a reduced initial investment. India’s fractional ownership platforms oversee more than Rs. 4000 crore in assets under management (AUM). The fractional ownership market is projected to experience substantial growth in the foreseeable future, propelled by the rising demand for alternative investment opportunities and the reduced obstacles to participation.
SEBI has adopted a proactive stance in regulating the fractional ownership industry and protecting the rights of investors, acknowledging its increasing popularity and potential. The recently implemented regulations define precise guidelines for the establishment and functioning of SM-REITs, guaranteeing consistency, equity, and openness. The regulations encompass multiple facets, such as the minimum dimensions of SM-REITs, the minimum retention mandate for investment managers, and the entitlements and obligations of investors. According to SEBI, the initial offering for an SM-REIT must have a minimum subscription amount of Rs 10 lakh per investor. This is different from the previous practice when fractional platforms typically required an investment of around Rs 25 lakh. This is anticipated to appeal to a broader range of ordinary investors.
Reduced Investment Threshold: To make fractional ownership more attainable by many investors, SEBI already reduced the minimum investing minimum for Smart Technology-REITs to Rs.10 lakh. This is very low in comparison to the Rs. was the earlier need. The amount required to open a PPF account is only Rs. 25 lakh, thereby providing a convenient option to invest in this channel.
Expanded Investment Scope: The SM-REIT framework has expanded the scope of fractional ownership by incorporating both commercial and residential properties. This provides investors with a wider range of investment options and caters to their diverse investment needs.
Enhanced Transparency and Accountability: The rules and regulations of SEBI ensure that the fractional ownership industry of basketball courts becomes transparent and accountable. Being always mandated, a minimum 5% holding of the SM-REITs in fund managers’ portfolios is one indicator to prove their determination to drive funds’ long-term performance. Besides, the investor can paradoxically be given a whole range of information on the SM-REITs, from investment strategy, and risk profile to financial performance records.
Investor Protection Measures: The regulations prioritize investor protection by providing clear guidelines on the rights and responsibilities of investors. Investors have access to redressal mechanisms in case of any disputes or irregularities. This ensures that their interests are safeguarded throughout the investment process.
The implementation of the SM-REIT framework is anticipated to have a significant influence on the real estate sector in India. SEBI’s initiative to introduce organization and regulation in the fractional ownership sector is anticipated to draw the interest of both domestic and foreign retail investors, while also enhancing liquidity in the real estate market.
Diversification: Fractional ownership through SM-REITs allows investors to diversify their portfolios by investing in real estate alongside other asset classes. This diversification strategy helps mitigate investment risks and enhance overall returns.
Lower Entry Barriers: The reduced investment threshold makes fractional ownership more accessible to a wider range of investors, including those with limited capital. This opens up new investment opportunities for individuals who may not have been able to invest in real estate directly.
Professional Management: SM-REITs are managed by experienced investment managers who bring their expertise and knowledge to the investment process. This ensures that investors benefit from professional decision-making and risk management practices.
Real estate experts have welcomed SEBI’s move to regulate the fractional ownership industry. They believe that introducing clear guidelines will enhance investor confidence and promote the sector’s growth.
Saurabh Vohara, Founder & CEO at ALYF, a fractional ownership platform: “The SM-REITs regulations have given a positive pathway for fractional ownership. These regulations safeguard the interests of investors and service providers alike,”
Kunal Moktan, CEO and Co-founder, of Property Share: “Any regulated product comes with significant benefits for investors – uniformity, investor protection, fairness, transparency, and access to redressal mechanisms.”
Shravan Gupta, Founder and CEO of YOURS: “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.”
Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India: “With a minimum size of Rs. 50 crore and minimum holding of 5% of an investment manager, this isn’t a significant entry barrier for newer fund managers, however, key checks and balances have been provided by SEBI.”
Shiv Parekh, Founder, and CEO, hBits: “SEBI’s 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 reflects SEBI’s confidence on the potential of the fractional ownership model in democratizing access of retail investors into real estate.”
The implementation of SM-REIT regulations by SEBI is a noteworthy measure aimed at coordinating and overseeing the fractional ownership sector in India. These regulations establish a precise structure for the establishment and functioning of SM-REITs, guaranteeing openness, and equity, and safeguarding the interests of investors. These policies are expected to stimulate growth in the real estate market and offer investors additional opportunities to create wealth by making fractional ownership more accessible and appealing to a wider variety of investors. With the ongoing development of regulations, fractional ownership is poised to gain popularity as an investment choice. This will make real estate investments more accessible to a wider range of people and revolutionize individual participation in the real estate market.
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By Ravi Kumar
