SEBI Framework for SM REITs: A New-age Investment Avenue

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Apurva Dhamankar

12/13/20232 min read

The decision to encourage investment through Small and Medium REITs (SM REITs) was made by market regulator SEBI. The SEBI board approved modifications to the REITs Regulations, 2014 on Saturday to create a legal framework for the formation of small and medium-sized real estate investment trusts (SM REITs), with an asset value of at least ₹50 crore as opposed to the minimum asset value of ₹500 crore for existing REITs.

An organization that owns, manages, or finances income-producing real estate assets is known as a REIT. Currently, they require a Rs 500 crore asset base. These organizations combine investor capital and allocate it to a range of commercial real estate projects, including office buildings and shopping centers. Like shares, real estate investment trusts (REITs) are traded on stock exchanges, allowing investors to buy and sell them at any time. There are just three REIT funds in India at the moment.

During the last 4-5 years, fractional ownership has gained traction in India, where investors pool their money to buy a property. In this case, the cost of an asset is divided among the several shareholders. Previously, though, the regulator had not established any rules to regulate this area.

Shravan Gupta, the founder and CEO of YOURS, a platform for fractional ownership of opulent second homes, stated that the regulation is expected to foster the growth and acceptance of this novel form of property ownership, harmonizing with established practices in developed nations. This is especially advantageous for retail investors who are not familiar with such structures.

The flexibility and inventiveness of real estate portfolio structuring are improved by SM REITs' capacity to establish distinct scheme. Aryaman Vir, CEO of WiseX, stated, "We anticipate the positive impact these regulatory changes will bring to the fractional ownership ecosystem, encouraging more inclusivity and diversification in real estate investments."

Investing in REITs provides a substitute for direct property ownership in the real estate market. It makes large upfront investments unnecessary, enabling people to begin with a small sum. Investors receive dividends and interest as rental income in exchange for their payments.

Vir further stated that “as the forerunners of the fractional ownership model and neo-realty investments in India, we applaud Sebi's progressive move in regulating the fractional ownership framework with the amendments to the REIT Regulations. It is excellent that Sebi has acknowledged the growing trend of fractional ownership platforms and expanded regulatory monitoring. We think it will provide investment protection, standard disclosure procedures, and a strong redressal mechanism in addition to attracting investor interest in the real estate sector."

Thank you.

Regards,

Deep Sheth,

Kautilya, IBS Mumbai.

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