Stakeholders in real estate investment trusts (REITs) expect better participation from investors after public market regulator Securities and Exchange Board of India tweaked norms for investments in the asset class.
SEBI on Friday notified regulations around SM REITs or small and medium REITs, after floating a consultation paper in May last year.
The notification, which amends the REIT regulations (2014), brings down the minimum investment amount to Rs 10 lakh from Rs 25 lakh, which was the norm for fractional ownership earlier, allowing investors invest in rent-generating commercial and residential real estate assets.
The listing process of this asset class will remain similar to other larger REITs, albeit with a few differences. Unlike large REITs, SM REITs’ assets must be about 95% completed.
“It is a watershed moment that 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,” said Shiv Parekh, the chief executive of fractional ownership platform, hBits.
hBits, which is in the process of amassing capital for its commercial real estate-focussed alternative investment fund (AIF), may also look at listing its assets on an SM REIT, Parekh said, following the announcement.
As per estimates by real estate management firm TruBoard, fractional ownership platforms in India have about Rs 4,000 crore in assets under management (AUM) as of August 2023.
According to commercial real estate consulting firm Vestian’s chief executive, Shrinivas Rao, the move may help push liquidity in the sector with greater participation from both foreign and domestic retail investors.
“It is expected to boost the participation of domestic and foreign retail investors. Also, liquidity in the Indian real estate market as an initial offering for an SM REIT, is mandated to have a minimum subscription amount of Rs 10 lakh per investor, contrasting with the earlier norm where fractional platforms often required an investment of about rs 25 lakh,” Rao said.
The new regulations also mandate a minimum corpus Rs 50 crore, with a minimum holding period of 5% of total outstanding units by the investment manager in each scheme for a period of two years, starting from the fourth year of listing till the fifth year’s end.
"This isn’t a significant entry barrier for newer fund managers; however, key checks and balances have been provided by SEBI,” Piyush Gupta, managing director - capital markets & investment services, Colliers India said.
However, according to an industry expert who wished to remain anonymous, the benefits from this move are yet to be understood as sponsors of fractional ownership platforms will also need to navigate the complexities of public listings and compliances.
Other issues of public listings such as running the platform, costs involved, ensuring the listing of good quality assets, are some areas that still need to be understood to gauge the success of these regulations.
Nonetheless, greater transparency will likely have a positive impact on the sector by providing “assurance to both investors and property owners, fostering trust and encouraging participation in these ventures”, according to Shravan Gupta, founder and chief executive of Yours, a platform for fractional ownership of luxury apartments.
In an earlier interaction with VCCircle, Amit Goenka, the chief executive and managing director of Mumbai-based Nisus Finance said in October 2023 that the firm is working on a rental yield platform strategy to develop co-working assets, which may see exits through listing on a smaller, real estate investment trust-like structure.
