Securities and Exchange Board of India has notified the regulations for small and medium real estate investment trusts and specified that investment managers of such REITs should have a minimum net worth of ₹20 crore and the REITs can raise a minimum of ₹50 crore from at least 200 unit holders.
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The markets regulator had issued a consultation paper on small and medium REITs last May with the intention to bring unregulated fractional ownership platforms under its ambit. In November, it approved the launch of such REITs but the detailed framework has been issued now. Under fractional ownership, several people pool in funds to purchase and own mainly commercial rent yielding properties in India.
The size of the asset proposed to be acquired in a scheme would be in the range of ₹50 to ₹500 crore.
For SM REITs, at least 95 per cent of the investments should be in revenue generating assets and they cannot invest in under-construction or non-revenue generating real estate assets. This is a big difference compared to larger REITs, for whom the threshold is 80 per cent in rent-generating assets and they can hold under-construction assets too.
Aryaman Vir, CEO of fractional platform WiseX said that that this would reduce uncertainty for the investor as under construction assets carried developer execution risk and other variables not under the control of the platform. “Apart from some minor tweaks such as sponsor holding the regulations are more or less aligned with what was in the consultation paper and thereare no major surprises,” he added.
Minimum unit holding requirement at all times for the first three years after listing by the sponsor or investment manager is 5 per cent for a SM REIT that does not have any debt borrowings and 15 per cent for a REIT that has taken on leverage.
“This opens a plethora of opportunities across size and scale of markets and products to retail and institutional investors to invest in office yielding real estate,” said Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India. “With minimum size of ₹50 crore and minimum holding of 5 per cent of investment manager, this isn’t a significant entry barrier for newer fund managers. However, key checks and balances have been provided by SEBI,” he added.
The minimum holding reduces telescopically with the number of years post-listing until it reduces to 1 per cent after the completion of the twentieth year from the date of listing.
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Shrinivas Rao, CEO, Vestian said that the minimum subscription amount of ₹10 lakh per investor will further boost the participation of retail investors, contrasting with the earlier norm where fractional platforms often required an investment of about ₹25 lakhs.” With SM REITs allowed to mobilise funds from ₹50 crore, it would likely bring a large number of ‘income-generating small and medium real estate assets under the purview of REITs,’ he added.