Investors can now have fractional ownership of rent-yielding real estate assets by making a minimum investment of Rs 10 lakh, with markets watchdog Sebi notifying the amended regulations for real estate investment trusts. Amid rising demand for high-value realty assets, the Securities and Exchange Board of India (Sebi) has notified the framework for Small and Medium Real Estate Investment Trusts (SM REITs), and experts opined that the development will have a significant positive impact on the emerging fractional ownership sector in the country.

The watchdog notified the amended regulations for REITs on March 8, permitting fractional ownership of REITs and it will encompass commercial and residential properties.

In November last year, Sebi board cleared the amendments to REITs Regulations, 2014, in order to create a regulatory framework for the facilitation of SM REITs, with an asset value of at least Rs 50 crore vis-a-vis minimum asset value of Rs 500 crore for existing REITs.

As per the notification, the minimum price of each unit of the scheme of the SM REIT shall be Rs 10 lakh or such other amount as may be specified by Sebi from time to time.

“The size of the asset proposed to be acquired in a scheme of the SM REIT is at least rupees fifty crores and less than rupees five hundred crores…,” it added.

The framework for 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. Shiv Parekh, Founder and CEO of fractional ownership platform hBits, said the notification reflects Sebi’s confidence in the potential of the fractional ownership model in democratising access of retail investors into real estate. The reduction in the minimum investment threshold to Rs 10 lakh will attract a larger pool of retail investors, he added.

Shravan Gupta, Founder and CEO of YOURS, said the move is expected to have a significantly positive impact on the emerging fractional ownership sector in the country.

It is a platform for fractional ownership of luxury second homes.

Sudarshan Lodha, Co-Founder & CEO of Strata, said the migration of fractional ownership platforms is still an option.

About the notification, Aryaman Vir, CEO of WiseX, said it will pave the way for enhanced opportunities in the real estate investment

Aankush Ahuja, CEO and Founder of FOIP, said the regulations of the fractional ownership industry under this framework will encompass both commercial and residential properties, thereby enhancing investor protection.

All these entities are Fractional Ownership Platforms (FOPs).

Typically, fractional investment of real estate through FOPs is an investing strategy in which the cost of acquisition of real estate is split among several investors, who invest in securities issued by a Special Purpose Vehicle (SPV) established by an FOP. Such SPVs purchase real estate assets.

FOPs allow investors to own a certain percentage or fractional share in the real estate asset through the securities issued by the SPVs.

“Being a pioneer of this fractional ownership model, hBits is also keen to be the first one to list our SM REITs thereby allowing our investors to make the most of this,” hBits’ Parekh said.