Want a slice of the real-estate in an upcoming location, but do not want to dish out crores to buy it? Getting hold of a small portion via fractional ownership is a way out. Now, SEBI is strengthening its regulations to protect individuals holding such fractional real estate.
In its consultation paper, the regulator noted how the current real-estate fractional ownership market lacked clear, uniform standards for property valuation and information diligence, which could adversely impact the regular buyer. Hence, SEBI wants to bring the platforms which offer such facilities under the ambit of micro, small and medium REITs. Currently, the investment ticket size asked by these platforms ranges between Rs 10-25 lakhs.
What are REITs?
Real estate investment trusts are made of investors who come together to invest in a property that is commercially viable or generates returns. This can range from warehouses, office spaces in prime locations or even residential estate. The minimum investment in such instruments is around Rs 10,000.
Their funds are professionally managed by a manager or company (also known as a special purpose vehicle). Thus, investors can own a small part of the real estate by means of shares that this SPV issues. This is known as fractional ownership. The returns are usually paid out in the form of dividends.
Under the proposed regulations, SEBI wants to bring such fractional ownership under the ambit of Micro, Small and Medium REITS.
Medium, small REITS
Here are few points you should remember:
1. It is proposed to be registered as a trust, and should have a separate sponsor, trustee and investment manager.
2. While the sponsor should have a minimum net worth of Rs 10 crore, the investment manager’s net worth should not be less than Rs 20 crore
3. Since all operational areas of an FOP are presently not governed under SEBI, investors might find it hard to get transparent information, legal recourse and easy liquidation. These are aspects that SEBI intends to address via this regulation.