SEBI issues guidelines for Small and Medium real estate investment trusts

SEBI, the regulatory body overseeing India's securities market, has unveiled new guidelines aimed at making real estate investments more accessible to the public. The latest move introduces a framework for Small and Medium Real Estate Investment Trusts (SM REITs), which will regulate the division of ownership in properties.

These regulations, a modification of the existing REIT rules from 2014, open doors for SM REITs to gather funds starting from ₹50 crore by distributing units to a minimum of 200 investors. These funds will then be utilized for buying and managing real estate, with ownership structured through special purpose vehicles (SPVs).

Under the new rules, SM REITs must have a net worth of ₹20 crore for their investment managers. When these SM REITs go for listing, they'll need to have at least 95% of their assets fully developed and generating revenue, a higher threshold compared to larger REITs.

For individuals interested in investing, the minimum subscription amount for an SM REIT's initial offering is set at ₹10 lakh per investor, offering a more affordable entry point. The investment manager is also required to retain a portion of the units for two years post-listing, ensuring stability.

However, if an SM REIT utilizes leverage, the investment manager must put in a 15% co-investment, with leverage capped at 49% of the REIT's assets. These measures are designed to balance risk and ensure responsible investment practices.

SEBI's approval of these amendments on November 25, 2023, is expected to stimulate growth in SM REITs, fostering a broader participation in real estate investment. These changes align with the burgeoning trend of fractional ownership platforms, which allow individuals to co-own properties and earn rental income.

On this decision, Aankush Ahuja, Founder and CEO, FOIP told Editorji that SEBI's decision to regulate small and medium REITs (SM REITs) marks a positive development for the Indian real estate sector, offering various advantages for investors.

These include ensuring uniformity, protecting investor interests, promoting fairness and transparency, and providing access to mechanisms for dispute resolution.

The regulation of the fractional ownership industry under this framework will encompass both commercial and residential properties, thereby enhancing investor protection. This move creates numerous opportunities for retail and institutional investors to participate in office yielding real estate across various market sizes and product types.

Additionally, SM REITs will be allowed to raise funds from both Indian and foreign investors, with investment managers mandated to maintain transparency by disclosing all relevant information on their websites. These measures aim to build trust and confidence among investors while promoting a more inclusive real estate investment landscape.

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