The new frontier in real estate investment

This comprehensive analysis sheds light on the transformative potential of Small and Medium Real Estate Investment Trusts (SM REITs) in reshaping the investment landscape for real estate in India. This report explores the emerging trends in fractional ownership where this innovative model allows multiple investors to jointly own high-value Grade A properties with smaller investments, democratizing access to real estate.

In a groundbreaking move, the Securities and Exchange Board of India (SEBI) has introduced amended regulations for SM REITs, opening the door for retail investors to participate in high-value real estate assets with a minimum investment of INR10 lakhs. This initiative enables a diverse group of investors to collectively own units of premium properties, providing access to real estate assets.

The rise of SM REITs is expected to create a ripple effect across the real estate industry, by offering developers an efficient exit strategy and enabling reinvestment of capital into new ventures, fostering sustained growth in the sector. As per the Fractional Ownership Platforms (FoPs), the increased liquidity and flexibility offered by SM REITs also enhance the attractiveness of real estate as an investment class, potentially leading to healthier returns ranging from 9-17 percent, depending on the asset class.

While the potential of SM REITs is immense, the report also highlights the inherent challenges and risks associated with fractional ownership. Liquidity concerns (relative), somewhat less favorable tax regime compared to regular equity investments, and the need for consensus among co-owners are critical factors that necessitate careful consideration and strategic management. SEBI’s regulatory framework, which mandates a minimum 5/15 percent units in the scheme of SM REIT (depending on leverage), aims to safeguard investor interests and bolster confidence.

Driven by the rising demand for residential and commercial real estate, the anticipated surge in demand is expected to unlock opportunities for a broader spectrum of investors, driving growth, and fostering innovation in the real estate sector.