28-Nov-2023
2 mins read
The SEBI (Securities and Exchange Board of India, during a recent board meeting authorised amendments to the SEBI (Real Estate Investment Trusts) Regulations 2014, paving the way for the creation of a regulatory framework drafted explicitly for Small and Medium REITs (Real Estate Investment Trusts). This framework allows these REITs to have an Asset Value of not less than Rs 50 crore, different from the current Asset Value of a minimum of Rs 500 crore required for existing REITs.
Key Features of the Framework
The approved regulatory framework for small and medium REITs encompasses various aspects, including the structure of these REITs, migration of existing structures meeting specified criteria, obligations of the investment manager (covering net worth, experience, and minimum unitholding requirements), investment conditions, minimum subscription, distribution norms, and valuation of assets. SEBI’s objective is to introduce flexibility and facilitate the growth of the market for fractional ownership of real estate.
Chairperson’s Perspective
Madhabi Puri Buch, the Chairperson of SEBI, emphasised the need to accommodate smaller-sized REITs to meet market demands. The relaxation of limits is expected to address specific risk factors associated with small and medium REIT structures, thereby expanding the market significantly for fractional ownership of real estate.
Consultation Paper and Regulatory Oversight
SEBI had previously floated a consultation paper in response to the proliferation of web-based platforms offering fractional ownership of real estate assets. The aim was to bring these platforms under SEBI’s regulatory ambit to ensure investor protection and market development. The consultation paper highlighted the necessity of registration and regulation for fractional ownership platforms, considering the increasing value of investments and the growing number of investors involved.
Current State of REITs in India
Presently, Real Estate Investment Trusts in India require a minimum asset base of Rs 500 crore. These entities function as companies that own, operate, or finance income-generating real estate properties, pooling funds from investors for ventures such as workspaces and malls. The existing REITs, namely Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust operate similar to shares and are listed on stock exchanges.
Fractional Ownership Trends
Over the past 4-5 years, fractional ownership has gained momentum in India, where investors collaboratively invest in properties. In this model, the cost of an asset is divided among individual shareholders. Previously, there were no specific guidelines from regulators overseeing this space. The proposed SEBI guidelines play a crucial role in formalising the sector, instilling investor confidence, and addressing the intricacies of Special Purpose Vehicle (SPV) securities issuances. This proposition is particularly beneficial for retail investors unfamiliar with such structures.
Listing of Small and Medium REITs
While the details regarding the listing of small and medium REITs are still awaited, SEBI’s approval allows for the formation of Special Purpose Vehicles (SPVs). This provision becomes crucial when investors decide to exit their investments, providing a structured mechanism for divestment.
In essence, SEBI’s approval of the framework for small and medium REITs marks a notable development in India’s real estate investment landscape. This move aims to protect investor interests and foster a more diverse and accessible market for fractional ownership, signalling a significant shift in the landscape of real estate investments.