The fractional real estate market in India is undergoing a major transformation, thanks to the new Small and Medium REIT (SM REIT) framework introduced by the Securities and Exchange Board of India (SEBI).
This landmark regulation is bringing much-needed transparency and security to a rapidly growing investment channel, making it easier and safer for a wider range of investors to own a piece of high-value commercial properties. This is a significant development for investors who previously found institutional-grade assets to be out of their reach.
Fractional Real Estate Investing: A New Era of Trust and Transparency
Fractional ownership platforms allow individuals to invest in a โsliceโ of a commercial property, earning a share of the rental income and capital appreciation. The average entry ticket for such an investment is now as low as โน5-25 lakhs, which is a major departure from the traditional high costs of commercial real estate.
SEBIโs new SM REIT framework aims to formalize this space and protect investor interests. It mandates that platforms must register as investment trusts, provide detailed asset-level disclosures, and adhere to strict compliance rules. This regulatory oversight is designed to build trust and ensure a more disciplined approach to asset selection.
Key highlights of the new framework include:
- Investor Protection: A crucial rule is that at least 95% of investor funds must be put into completed, income-generating assets. This effectively removes the risk of capital being locked in under-construction projects, a common concern in the past.
- Accountability: The framework requires investment managers to hold a minimum stake in every asset they manage. This โskin-in-the-gameโ approach ensures that the platformโs interests are aligned with those of its investors, promoting better management and due diligence.
- Potential for Liquidity: SEBI is also exploring the possibility of enabling secondary market trading of SM REIT units. This would give investors a much-needed exit route and the potential for real-time price discovery, making these investments more liquid and attractive.
While the tax treatment of SM REITs is still evolving, experts believe that aligning it with the tax rules for listed REITs could make these investments even more appealing.
This new framework is not just good for investors; it also benefits developers by helping them free up capital from completed projects, which in turn can be used to fund new developments.
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