Small and medium REITs: Sebi launches new framework for fractional ownership of real-estate

SEBI Chairperson Madhabi Puri Buch (File pic)

The Sebi Board has approved amendments to the SEBI (Real Estate Investment Trusts) Regulations 2014 (REIT Regulations) to create a new regulatory framework for small and medium REITs.

These REITs can have an asset value of at least Rs 50 crore versus the current minimum asset value of Rs 500 crore for existing REITs.

SM REITs shall have the ability to create separate schemes for owning real estate through special purpose vehicles constituted as companies, said the Sebi press release.

"The regulatory framework approved by the Board for SM REITs, inter-alia, provides for the structure of SM REITs, migration of existing structures meeting certain specified criteria, obligations of the investment manager including net worth, experience, and minimum unitholding requirement investment conditions, minimum subscription, distribution norms, valuation of assets, etc.," the statement added.

"There are people who want to participate in and offer smaller-sized REITs, so that is an existing need in the market, and we should permit that... so we have now relaxed the limits. We have this new category because there are certain risk factors that have been built into these small and medium REIT (structures)... this, we hope, will expand the market in a significant way for fractional ownership of real estate," said the Chairperson of Sebi, Madhabi Puri Buch, during a press conference after the Board meeting on November 25.

The regulator had floated a consultation paper on this on May 12, after taking note of the "mushrooming of web-based platforms offering fractional ownership of real estate assets" over the past two to three years.

The paper proposed extending the framework of Sebi (REIT) Regulations to bring these platforms under the regulatory ambit of Sebi, to develop this market and protect investors.

The consultation paper said, "Given the increasing value of investments with such FOPs, as well as the rising number of investors, it has become necessary to consider whether it is an appropriate juncture to require registration and regulate these FOPs to bring about, inter-alia, regulatory oversight, common uniform standard disclosure practices, ensuring liquidity by way of listing or similar such measure, investor redressal mechanism, etc., to safeguard the interest of investors."