Fractional real estate ownership firm Property Share plans to launch one small and medium-scale real estate investment trust (SM REIT) scheme every month over the next year, co-founder and Chief Executive Officer Kunal Moktan said in an interaction with Moneycontrol .
Fractional ownership refers to purchasing a percentage or share of an asset instead of paying the full price.
Property Share had received the nod from the Securities and Exchange Board of India (Sebi) to launch SM REITs, under the name Property Share Investment Trust.
In fact, Property Share is the first entity to be granted an SM REIT licence by Sebi. Infrastructure and real estate firm REPL has also received this licence since.
"We have filed the first draft offer document with Sebi to raise Rs 353 crore, and we are awaiting approval. This will be an investment opportunity for a commercial project in Bengaluru's Outer Ring Road. We have also readied the second scheme that we want to list. Our plan is to launch 12 schemes in the next 12 months," Moktan said.
What are SM REITs?
SM REITs are floated as individual schemes, like asset management companies (AMCs) launching individual mutual funds. Each SM REIT scheme represents a separate investment opportunity, largely in income-yielding commercial properties.
According to Sebi regulations, SM REITs can only invest in completed assets, unlike the existing REITs which can invest a part of its capital in land or under-construction projects. SM REITs are also not allowed to carry out related party transactions.
Real estate observers have been bullish on SM REITs, since they are a higher-yield vehicle to invest in commercial properties, and can be used to organise a still-fragmented office market. Real estate consultant CBRE has identified SM REITs in India as a $60 billion market in the next few years.
Moktan said that investors can expect a higher yield from SM REIT investments due to the rule that mandates investments only in finished, rent-yielding properties. Currently, rental yields for listed REITs are in the 5-5.5 percent range, while those from SM REITs are expected to be in the range of 8.5-9 percent, Moktan added. Property Share's schemes are targeting that yield range. Besides offices, Moktan said that the firm will look at retail and hospitality as key investment opportunities.
While some industry observers have expressed concerns that SM REITs, which have asset sizes ranging from Rs 50 crore to Rs 500 crore, may be used as vehicles for excessive speculation, similar to the phenomenon witnessed in some SME public offerings, Moktan said that sufficient guard rails are in place.
"Our first scheme is of a significant size (Rs 353 crore), and the minimum size of an investment in an SM REIT of Rs 10 lakh is also fairly high. Besides, we are planning to list on the mainboard, and not on the SME board, where most of the speculative activities have been seen," he said.
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