Sebi notifies SM REIT; what does this mean for you

The Securities Exchange Board of India (Sebi) has introduced amendments to the REIT Regulations 2014, outlining provisions for the formation of Small and Medium Real Estate Investment Trusts (SM REITs). This initiative seeks to oversee the fractional ownership sector and protect investor welfare by encompassing both commercial and residential properties under the guidelines. 

“Sebi notification to the SM REITs regulations has come is just less than 3.5 months since the initial approval given by the regulator in setting up of SM REITs which clearly reflects Sebi’s confidence on the potential of the fractional ownership model in democratising access of retail investors into real estate. It is a watershed moment that will act as a catalyst in enhancing market efficiency and increase awareness among potential investors about the benefits of this investment avenue and ensure widespread adoption,” said Shiv Parekh, Founder and CEO, hBits. 

Being a pioneer of this fractional ownership model, hBits is also keen to be the first one to list our SM REITs thereby allowing our investors to make the most of this. The fractional ownership ecosystem is gaining momentum over the years, and more than Rs 4000 crores of A grade properties have undergone the FOP route and sold to investors over the last few years. The constant engagement between industry stakeholders and the regulator has yielded significant results, with the notification giving the right impetus to make fractional ownership the top choice of investors. Further, the reduction in the minimum investment threshold to Rs 10 lakhs will attract a larger pool of retail investors. It will also bolster their confidence and promote democratization in the ecosystem, explained Parekh. Currently, fractional platforms demand investments of around Rs 25 lakh.

SM REIT funds will be utilized for acquiring and managing real estate assets, thereby generating income for the investors. It can pool funds starting from Rs 50 crore by issuing units to a minimum of 200 investors. The ownership of these assets will be organized under special purpose vehicles (SPVs). An investment manager tasked with establishing an SM REIT must have a net worth of at least Rs 20 crore.

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"We commend SEBI’s proactive stance on introducing regulations on follow-on offers by REITs and InvITs with an aim to enhance liquidity and investor participation in these sectors. The establishment of a clear framework in SM REITs by SEBI will pave a way for enhanced opportunities in real estate investment segment. As a pioneer in the fractional ownership landscape, WiseX is at forefront in upholding the highest standards of transparency and accountability. The amendments are in alignment of our core values of empowering our investors with a plethora of secured investment avenues. This is a significant stride towards fostering innovation and excellence in the fractional ownership industry," said Aryaman Vir, CEO of WiseX.

In SM REIT schemes, a minimum of 95% of the assets must be fully developed and generating revenue, as opposed to the 80% requirement for larger REITs.