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Wednesday, April 24, 2024

Fractional ownership platforms start registering under new SEBI regulations

Fractional ownership platforms ↗ have started the process of registering under SM REIT regulations ↗, a month after Securities and Exchange Board of India (SEBI) notified these rules to govern small and medium real estate investment trusts ↗ (SM REITs) of income-generating and completed properties including commercial assets, rental housing, warehousing, and hotels.

Integrated co-working firm EFC (I) Ltd plans to form an investment manager ↗ entity to manage assets and investments of SM REIT through a wholly owned subsidiary EFC Ltd. Others like Strata and WiseX are also taking similar steps.

“With Sebi notifying amended regulations for SM REITs, investors can now have ownership of rent-yielding real estate assets ↗ by making a minimum investment of Rs 10 lakh. The move will help enhance transparency and boost participation of both domestic and foreign retail investors thereby leading to better liquidity in the market,” said Umesh Sahay, founder & CEO, EFC (I) Ltd.

The company’s board has approved a proposal to create a step-down subsidiary under EFC Ltd for acting as an investment manager to SM REIT.

EFC REIT is being incorporated and an application is expected to be filed with Sebi in 3-4 months.

Aryaman Vir, CEO, WiseX, another such platform, said it plans to register under SM REIT regulations in the coming months.

“We are working closely with legal & tax advisors, merchant banker and Sebi to work out the operational requirements of the regulations, apply for the registration of the license as well as migration of the existing assets,” Vir said.

The company aims to register and receive the licence before the six-month deadline.

Amid rising demand for high value realty assets and with a view to boost investments in the sector, the market regulator ↗ had in March this year notified the framework for SM REITs. This was aimed at regulating the fractional ownership industry ↗ to safeguard investor interest by including both residential and commercial properties ↗.

Under the framework, investors can have fractional ownership of rent yielding assets by making a minimum investment of Rs 10 lakh.

“The flexibility offered by the regulator to all the Fractional Ownership Platforms ↗ (FOPs) for migration indicates Sebi’s aim to foster overall development of fractional ownership of the asset class in India. We are actively pursuing migration,” said Sudarshan Lodha, cofounder & CEO, Strata.

According to a recent report by JLL India and PropShare, India’s estimated nearly $500 million fractional ownership market is set to grow exponentially touching about $5 billion by 2030.

Industry body National Real Estate Development Council (NAREDCO) has also said introducing SM-REITs is a positive step towards making real estate investment more accessible in India.

By lowering entry barriers and offering diversification opportunities, these REITs intend to attract more retail and institutional investors and boost market confidence.

The micro-REITs will be able to list with an asset value of at least Rs 50 crore and a maximum of Rs 500 crore. The SM-REITs will also be able to create separate schemes for owning real estate assets through special-purpose vehicles constituted as companies.

The regulations allow these micro-REITs to leverage up to 49% of the value of the scheme’s assets. It also mandates investment managers to always hold at least 5% of total outstanding units if a SM-REIT is not leveraged. In the case of a leveraged SM-REIT, the investment manager is required to hold 15% of the units.

James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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