In a significant development, fractional ownership platforms have begun the process of registering under the Small and Medium Real Estate Investment Trust (SM REIT) regulations. This comes a month after the Securities and Exchange Board of India (SEBI) notified the rules to govern SM REITs. The SM REIT regulations are applicable to income-generating and completed properties, including commercial assets, rental housing, warehousing, and hotels. Integrated co-working firm EFC I Ltd has announced its plans to form an investment manager entity to handle the assets and investments of SM REIT. The firm intends to do so through a wholly-owned subsidiary EFC Ltd. Other platforms such as Strata and WiseX are also taking similar steps to register under the SM REIT regulations.
Boosting Transparency and Investor Participation The introduction of SM REIT regulations will now allow investors to have ownership of rent-yielding real estate assets by making a minimum investment of Rs 10 lakh. This move is expected to enhance transparency, boost the participation of domestic and foreign retail investors, and improve liquidity in the market, according to Umesh Sahay, the founder and CEO of EFC I Ltd. The company’s board has approved a proposal to create a step-down subsidiary to act as an investment manager for SM REIT. EFC REIT is in the process of being incorporated, and an application is expected to be filed with SEBI within 3-4 months. Meanwhile, WiseX CEO Aryaman Vir has also expressed plans to register his platform under the SM REIT regulations in the coming months. WiseX is working closely with legal and tax advisors, merchant bankers, and SEBI to ensure compliance with the regulatory requirements.
Significance and Potential of Fractional Ownership The introduction of the SM REIT framework is seen as a positive step towards making real estate investment more accessible in India. By lowering entry barriers, offering diversification opportunities, and appealing to retail and institutional investors, these REITs aim to boost market confidence. The micro-REITs will be able to list with an asset value ranging from Rs 50 crore to Rs 500 crore. They will also be able to create separate schemes for owning real estate assets through special-purpose vehicles constituted as companies.
The regulations allow micro-REITs to leverage up to 49% of the scheme’s assets. Investment managers are required to hold a minimum of 5% of total outstanding units if a SM REIT is not leveraged, and 15% of the units in the case of a leveraged SM REIT. According to a report by JLL India and PropShare, India’s fractional ownership market, estimated to be nearly $500 million, is expected to grow exponentially to about $5 billion by 2030. This indicates the significant potential for fractional ownership platforms in India and the growth in investor interest in this asset class.
In conclusion, the registration of fractional ownership platforms under the SM REIT regulations marks a significant milestone in the real estate sector. It opens doors for retail and institutional investors to own rent-yielding assets with a minimum investment of Rs 10 lakh. With the potential for exponential growth and opportunities for diversification, SM REITs are poised to create a more transparent and accessible real estate investment landscape in India.
