SEBI introduces new regulations for fractional ownership sector with SM REIT guidelines

SEBI's REIT Amendment: The Securities and Exchange Board of India (SEBI) has introduced new regulations, termed the Sebi (REIT) (Amendment) Regulations 2024, aiming to oversee the fractional ownership sector. These regulations amend the REIT Regulations 2014 to establish guidelines for Small and Medium Real Estate Investment Trusts (SM REITs), as per the notification.

Under these amendments, SM REITs will be allowed to pool funds starting from Rs 50 crore by issuing units to a minimum of 200 investors, which will be utilised for acquiring and managing real estate assets or properties. This move is anticipated to facilitate fractional ownership of rent-yielding real estate assets, including high-end second homes nationwide.

Regulatory transparency boost

The amendments, sanctioned by SEBI on November 25 last year, are expected to broaden the scope of fractional ownership in the real estate sector. The revised regulations seek to regulate and organise the fractional ownership segment while enhancing transparency in the sector, according to Shravan Gupta, Founder and CEO, YOURS, a platform for fractional ownership of luxury second homes.

"The recent decision by SEBI is expected to have a positive impact on the emerging fractional ownership sector in the country. This move comes at a time when the market and demand for fractional or co-ownership properties are rapidly growing. The amendments made to the Real Estate Investment Trust (REIT) Regulations in 2014 aim to establish clear guidelines for the formation of Small and Medium Real Estate Investment Trusts (SM REITs)," Gupta said.

"Through these amendments, the regulatory body seeks to not only regulate and organise the fractional ownership segment but also enhance transparency in the sector. The introduction of specific regulations for SM REITs will provide a level of assurance to both investors and property owners, boosting trust and encouraging participation in these ventures," Gupta added.

Anticipated liquidity boost

Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India, said that the notification on SM REITs was eagerly awaited and will provide a substantial boost to providing liquidity to granular holdings of office-yielding assets.

"The notification on SM REITs was awaited for a long time and will provide a huge boost to providing liquidity to granular holding of office yielding assets. This opens a plethora of opportunities for the size and scale of Markets and Products for Retail and Institutional Investors to invest in office-yielding Real Estate.

"With a minimum size of Rs50 crore and the minimum holding of 5 per cent of the investment manager, this isn’t a significant entry barrier for newer fund managers, however key checks and balances have been provided by SEBI," Piyush added.