Indian regulators are actively driving dynamic and multidimensional transformation within the real estate sector. A wave of progressive regulatory reforms including the implementation of RERA Act (2016) to strengthen developer liability, GST to streamline taxation, and REIT Regulations (2014) to open up new asset classes. All have helped promote accessibility, transparency and stability for discerning investors.
The introduction of the Real Estate Investment Trust (REIT) Regulations in 2014 and the subsequent listing of India’s first REIT in 2019 opened new avenues for retail investors to benefit from institutional real estate investments.
SEBI has upped the ante with a new framework for Small and Medium Enterprise REITs (SM REITs) that will further democratize access to real estate investments in India. While some investors were already diversifying their portfolios by investing in commercial real estate through fractional ownership platforms (FOPs), this new SM REIT regulation provides investors with additional regulatory oversight. , which provides the essential benefits associated with regulation (remedial mechanisms and enhanced liquidity).Also read: Industry insiders say small and midsize REIT framework will boost real estate fractional market growth 10x to $5 billion
According to a joint analysis by JLL and Property Share, India’s fractional ownership market is currently estimated to be around $500 million and will grow tenfold in the next six years, with assets under management (AUM) expected to reach 50% by 2030. It is expected to exceed $1 billion.
REITs (regardless of asset size) are an established model for real estate investment globally. In the US alone, listed REITs manage a staggering total assets of US$2.5 trillion. His REIT market in India shows similar potential, with an impressive five-year growth trajectory, with total asset value now surging from around USD 3.6 billion to USD 15.6 billion.
Promoting retail investment
SEBI’s new regulatory framework for SM REITs has democratized access to high-quality real estate assets, traditionally the domain of institutional investors. By lowering barriers to entry and standardizing investment requirements, retail investors have the opportunity to diversify their portfolios with real estate assets that were previously out of reach.
By setting the minimum publication size, INR500 billion and requires issuing units to at least 200 investors, SM REIT creates an accessible entry point for retail investors seeking to participate in India’s dynamic real estate market. This lower investment threshold allows a wider range of individuals to benefit from the potential returns associated with this asset class. Investors can benefit from both stable rental income and potential capital value.Also read: Demat Account: What is REIT? How to invest in REIT? MintGenie explains
Benefits for investors
Access to grade a properties: SM REIT provides exposure to carefully selected, high-quality Grade A commercial real estate properties that were previously out of reach for many retail investors due to high capital requirements. This opens the door to higher rental yields and the potential for capital appreciation.
Diversification opportunities: Each SM REIT scheme can house multiple assets (commercial, retail, residential, etc.) with a total threshold of INR500 Cr allows investors to diversify their portfolio and reduce the risks associated with concentrating on only a single asset.
Improved liquidity and flexibility: Listing on a stock exchange facilitates efficient price discovery for SM REIT units. This gives investors more flexibility to move in and out of the market as needed to suit their investment goals/scope.
Strengthening transparency and investor protection: Regulatory oversight by SEBI ensures a level playing field with standardized minimum investments, regular reporting, and investor protection mechanisms. This fosters trust and transparency within the market, giving investors greater confidence.Also read: Real Estate: How fractional ownership is redefining investment rules for small investors?
Risks and considerations
In India, a typical REIT functions on a master trust model, where the REIT trust directly owns all the underlying SPV shares and the SPV owns the rent-generating assets. Therefore, potential value accretion or dilution may occur depending on the quality/(or lack of quality) of new assets added to the master trust by the REIT’s investment manager (subject to shareholder approval). there is.
SM REITs follow a similar ownership pattern of the underlying assets, but with scheme-level segregation (similar to mutual funds) and caps. INR500 Cr per scheme. This gives investors in a particular scheme much greater visibility into the assets that make up that scheme. Since SM REIT can invest in a limited number of properties, the performance of each SM REIT scheme is highly dependent on the specific asset.
Thorough due diligence is critical to mitigating this risk. Carefully consider the investment manager’s track record, governance practices, and underwriting criteria used to select properties. By reviewing these aspects, you can make informed investment decisions that balance potential rewards with calculated risks.Also read: Are you building your portfolio for 2025? Here are 5 real estate investment options
Our goal
The recent JLL Property Share Report identifies a significant opportunity in the Indian real estate sector, with an estimated 328 million sq ft of Grade A office space suitable for inclusion in Specialized Investment Trust (SM REIT) schemes. Masu. This translates into approximately USD 48 billion of untapped investment potential.
The emergence of SM REITs offers a compelling proposition to unlock value for all stakeholders. Fund managers can leverage these schemes to discover undervalued assets within this vast real estate pool and generate superior returns for investors. In particular, SM REITs can further energize the real estate sector by providing developers/asset owners with a path to much-needed liquidity, facilitating reinvestment, and driving continued growth.
SEBI’s proactive approach in regulating SM REITs underlines the regulator’s efforts to foster a conducive environment for deepening the field of alternative investments in India.
Mr. Ganesh Arunachalam, Vice President of Investments (North and West), Property Share.
Unlock a world of benefits! From insightful newsletters to real-time inventory tracking, breaking news and personalized newsfeeds, it’s all here, just a click away. Log in here!
