Sebi’s push on SM REITs to regularise real estate assets worth ₹4,000 crore: Report
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
An industry report by Colliers India suggests that market float to the tune of ₹4,50,000 crore will be available through a complete listing of strata office assets by 2026. The report suggests that the regulations of SMReits are expected to regularise real estate assets worth over ₹4,000 crore in the near midterm.
The Securities and Exchange Board of India (SEBI) recently took a significant step in enhancing the liquidity of real estate assets under fractional ownership platforms (FOPs) by formulating detailed guidelines for Small and Medium Real Estate Investment Trusts (SM-REITs).
An industry report by Colliers India suggests that market float to the tune of ₹4,50,000 crore will be available through a complete listing of strata office assets by 2026. The report suggests that the regulations of SMReits are expected to regularise real estate assets worth over ₹4,000 crore in the near midterm.
The report by Colliers mentions that with 200 million square feet of Grade A properties under the Strata sale model, it is estimated that only 10-20% of office assets are currently being offered by FOPs that are accessible to retail investors.
SEBI’s recent guidelines are poised to regulate the fractional ownership market and foster increased retail participation. Colliers report also forecasts a surge in the strata stock across India’s top six cities, reaching 260-270 million square feet in the next two years, with an estimated market value of around ₹4,50,000 crore.
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“SM REITs will not only foster retail investors’ interest in the real estate sector but will ensure investment portfolio diversification in a regulated environment. Aspects like reduction in minimum investment amount, mandatory manager holding period, and 95% presence of income-generating assets will make SM REITs more endearing to the informed investor. Interestingly, the number of unitholders for the three office REITs in India has shown an annual growth of 60-80% since listing.
On similar lines, SM REITs have the potential to witness an increase in ownership base by up to 20 times in the next 4-5 years. Altogether, the Indian realty sector will witness fractional ownership being established as a promising alternative investment avenue in the coming years,” said Badal Yagnik, Chief Executive Officer, Colliers India.
As SM REITs gain popularity, the share of commercial assets accessible to retail investors is expected to rise, signalling a significant boost for fractional ownership in commercial real estate. The recent regulatory push is likely to attract retail investors by providing them with the opportunity to invest in smaller fractions of properties with relatively smaller amounts.
Major players in the fractional ownership market like Strata, hBits PropertyShare, Assetmonk, Alyf, YOURS and WiseX had welcomed the move. However, these players say that clarity is needed on many issues at the moment.
The Colliers report sheds light on the surge in interest and adoption of FOPs in recent times which can be attributed to various factors, including rising disposable income levels, improving regulatory landscape, and increasing leisure travel preferences in the post-COVID-19 era.
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In addition to commercial real estate, regulated fractional ownership is expected to expand beyond residential properties. This expansion will attract a larger number of investors across various asset classes, with SM-REITs likely to bring in more funds to manage and upgrade office assets to international standards.
Moreover, the residential segment of fractional ownership has been gaining popularity amongst investors, particularly in post-COVID-19 times, with increased preference for owning second homes in popular tourist locales across the country. This trend presents a massive opportunity for developers to tap into real estate hotspots beyond Tier I cities, with the likely listing of residential assets as SM-REITs.
In the residential segment, investing through FOPs typically requires a minimum amount of ₹10-15 lakh, aligning with SEBI’s stipulations. Presently, various web-based platforms offer a range of properties including apartments, villas, resorts, and holiday homes in tourist destinations in and around Tier-I cities. Additionally, models like time and asset sharing provide retail investors with the opportunity to collaborate on property costs or usage time frames.
Following the COVID-19 pandemic, there has been a notable surge in investor interest in owning villas and luxury apartments as secondary residences in popular tourist destinations nationwide. Looking ahead, developers stand to capitalize on opportunities in real estate hotspots beyond Tier I cities.
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With the probable listing of residential assets as SM REITs, premium properties in major offbeat destinations such as Alibaug, Lonavala, Goa, Kodagu, Rishikesh, and Shimla are expected to attract increased attention from both developers and retail investors.
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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow