Facilitation of Small & Medium REITs – Amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 for creation of new regulatory framework

06 Dec 2023
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The Securities and Exchange Board of India (SEBI) has recently notified amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014, via the SEBI Board Meeting Report dated November 25, 2023.

Earlier in August 2023, SEBI floated a consultation paper for regulating all web-based platforms offering fractional ownership of real estate assets to protect small investors. Such fractional ownership of real estate assets was proposed to be brought as micro, small, and medium Real Estate Investment Trusts (REITs) under SEBI’s REITs rules. Typically, fractional investment of real estate through Fractional Ownership Platforms (FOPs) is an investing strategy in which the cost of acquisition of real estate is split among several investors. These investors invest in securities issued by a Special Purpose Vehicle (SPV) established by an FOP and the SPVs purchase real estate assets.

The regulatory framework approved by the board for Small & Medium (SM) REITs provides for the structure, migration of existing structures meeting certain specified criteria, obligations of the investment manager including net worth, experience and minimum unit holding requirement, investment conditions, minimum subscription, distribution norms and valuation of assets. SEBI has approved the concept of SM REIT, allowing fractional ownership platforms for real estate with assets of at least INR 50 crore to come under the regulatory fold. Such SM REITs should be set up as a trust with the ability to establish separate scheme for owning real estate assets through wholly owned special purpose vehicles constituted as a company. It has kept the option of migration to the newly classified SM REITs framework voluntary. The key change is the reduction of the minimum asset value required for these trusts which was previously set at INR 500 crore. SEBI also proposed a minimum ticket size of INR 10 lakh. This move aims to create a framework for small and medium-sized REITs, making real estate investments more accessible to a broader range of investors.

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