Small and Medium REITs: SEBI Gives its Nod to Framework
REIT Real Estate Investment Trust money for home finance transaction vector

The market regulator, the Securities and Exchange Board of India (SEBI), is looking forward to promoting investments through Small and Medium Real Estate Investment Trusts (SM REITs). 

On November 24, 2023, the SEBI board gave a go-ahead to amendments to Real Estate Investment Trusts Regulations, 2014, in a bid to create a regulatory framework for the facilitation of SM REITs, with an asset value of about Rs 50 crore vis-a-vis minimum asset value of Rs 500 crore for existing REITs.

The decision was given a green signal at the meeting of the board of the SEBI in Mumbai. Experts approved this move by the SEBI to regulate the fractional ownership real estate market with the amendments to the REIT Regulations. 

The objective of SM REIT is to aid in expanding the equity market in a significant manner so that more retail investors can have fractional ownership in REIT units. 

Typically, a REIT is a company that owns, operates, or provides financing for income-generating real estate properties. Currently, such companies are required to have an asset base of Rs 500 crore. Such companies pool funds from investors, directing them toward various commercial real estate ventures such as workspaces and malls. 

Similar to shares, REITs are listed on stock exchanges, enabling investors to buy or sell them at any time on the exchange.  At present, there are just three REIT funds in India. In the past four-five years, fractional ownership has gained momentum in the country, where investors pool their money to buy a property. 

The cost of an asset is split between individual shareholders in this case. Earlier, there were no guidelines issued from the market regulator in this regard. 

Experts state that the guidelines proposed by SEBI are important for formalising the sector, instilling investor trust, and addressing the complexity of Special Purpose Vehicle (SPV) securities issuances. This move would prove to be beneficial for retail investors who may not be familiar with such structures.

Going ahead, the market regulator is mulling over creating more such products.

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