Small and medium REITs: Most players ready for a shift to new Sebi rules

Move to help boost confidence and bring in standardisation, say industry participants

While the markets regulator has kept the option of migration to the newly-announced Small and Medium Real Estate Investment Trust (SM Reits) framework voluntary, most players in this space have shown an inclination towards making the shift.

On Saturday the Securities and Exchange Board of India (Sebi) approved the concept of SM Reit, allowing existing fractional ownership platforms for real estate with assets of at least Rs 50 crore to come under the regulatory fold.

“It is entirely optional. There are a large number of platforms who are operating under a company structure. They are free to do that. There is nothing that is going to mandate them to come here. If they wish to come into the Reit structure, they are free to do so. If they wish to operate under the company structure, that is up to them,” Sebi chairperson Madhabi Puri Buch clarified on Saturday.

Most existing players said that Sebi’s proposed framework will help reach a wider audience and help lower costs.

Even though a final circular is awaited, Sebi said that the minimum subscription would be Rs 10 lakh. At present, most platforms have a minimum ticket size of Rs 25 lakh. The regulator may bring it down further when the market matures.

“Having Sebi as a regulator will boost confidence in the industry with better disclosures, standardisation, and transparency. The minimum ticket size of Rs 10 lakh is also good as it will help bring in liquidity. Further, larger distributors will also start engaging with the product. We are keen to migrate,” said Shiv Parekh, Founder and CEO, hBits, a fractional ownership platform (FOP) with assets under management (AUM) of Rs 260 crore.

Industry players also said that coming under Sebi’s fold would help attract overseas flows and gain more credibility, as it will boost confidence as more investor-protection measures are put in place.

“Many investors are keen as this segment would finally come under the regulatory ambit. Sebi’s decision to grant flexibility to FOPs reflects its trust in the industry. Unless there is anything that hinders our business rather than helping us grow, we would consider migrating. However, we are awaiting clarity on sponsors’ holding as we are more comfortable with the limit of 5 per cent,” said Sudarshan Lodha, co-founder and CEO, Strata — a platform with an AUM of Rs 1,200 crore.

A few other platforms that Business Standard reached out to, including Assetmonk, said that they are keen to shift but await clarity. WiseX, formerly Myre Capital, which had paused investments after the discussions on new framework, plans to resume business.

“In an investment business it is necessary to have guardrails to ensure investor interest. For the industry to further scale, it is essential for all platforms to comply with the new framework. We believe that those who evolve and run licensed fractional ownership will see the maximum upside from the regulatory changes,” said Aryaman Vir, CEO, WiseX, which manages assets worth Rs 200 crore.

Industry players said that a major advantage of coming under the framework would be that these products would become a part of a well-established ecosystem of brokers, investment advisors, analysts, and portfolio management services (PMS) players.

“We understand that Sebi will allow the creation of separate schemes for owning real estate through Special Purpose Vehicles constituted as companies. This will help fractional ownership because in this case, the transfer of units is less complicated, smooth and cost effective,” said Shravan Gupta, founder, Yours – an FOP focused on luxury homes.

Gupta added they will continue to operate in the Rs 50 lakh-to Rs 2.5-crore bracket for minimum subscription.