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Platforms with fractional ownership begin to register under SM REIT guidelines.


Fractional ownership platforms are embarking on a journey towards compliance with the Securities and Exchange Board of India (SEBI) regulations governing small and medium real estate investment trusts (SM REITs). SEBI recently issued rules to regulate SM REITs, encompassing income-generating and completed properties such as commercial assets, rental housing, warehousing, and hotels. This move signals a significant step forward for the real estate investment landscape in India.

Integrated co-working firm EFC (I) Ltd is among the pioneers, outlining plans to establish an investment manager entity to oversee assets and investments of SM REIT through its wholly owned subsidiary, EFC Ltd. Similarly, other platforms like Strata and WiseX are also initiating similar procedures, underscoring a collective effort within the industry to adhere to the regulatory framework.

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SEBI's notification of amended regulations for SM REITs enables investors to acquire ownership stakes in rent-yielding real estate assets with a minimum investment threshold of Rs 10 lakh. Umesh Sahay, founder & CEO of EFC (I) Ltd, emphasizes that this development will not only enhance transparency but also encourage both domestic and foreign retail investors to participate, ultimately leading to improved market liquidity.

In line with SEBI's directives, EFC (I) Ltd has received board approval to establish a step-down subsidiary under EFC Ltd, tasked with acting as an investment manager for SM REIT. Plans are underway for the incorporation of EFC REIT, with an application slated to be filed with SEBI within the next 3-4 months. Aryaman Vir, CEO of WiseX, echoes similar sentiments, expressing intentions to register under SM REIT regulations in the forthcoming months. Collaborating with legal, tax advisors, merchant bankers, and SEBI, WiseX aims to navigate operational requirements, secure registration, and migrate existing assets within the stipulated six-month timeframe.

SEBI's move to introduce regulations for SM REITs aligns with the escalating demand for high-value real estate assets and aims to stimulate investments in the sector. The framework seeks to regulate the fractional ownership industry, encompassing both residential and commercial properties, to safeguard investor interests. Sudarshan Lodha, cofounder & CEO of Strata, commends SEBI's flexibility towards Fractional Ownership Platforms (FOPs), affirming active pursuit of migration.

A joint report by JLL India and PropShare forecasts exponential growth in India's fractional ownership market, estimating a surge from nearly $500 million to approximately $5 billion by 2030. Recognizing the potential of SM-REITs, industry stakeholders, including the National Real Estate Development Council (NAREDCO), laud the initiative as a positive step towards democratizing real estate investment in India.

By lowering entry barriers and offering diversification opportunities, SM REITs aim to attract a broader spectrum of retail and institutional investors, thereby bolstering market confidence. These micro-REITs will be eligible for listing with an asset value ranging from Rs 50 crore to Rs 500 crore and can establish separate schemes for owning real estate assets through special-purpose vehicles constituted as companies.

SEBI's regulations permit micro-REITs to leverage up to 49% of the scheme's assets, with investment managers mandated to hold a minimum of 5% of total outstanding units for non-leveraged SM REITs and 15% for leveraged ones. As the industry gears up for compliance, the concerted efforts of stakeholders underscore a collective commitment towards advancing the landscape of real estate investment in India.

April 24, 2024 10:58 a.m. 15125

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