Enhancing Accessibility and Liquidity: Innovations in Small and Medium REIT Investments

Posted On - 15 June, 2024 • By - C.V. Charanya Charanya

The real estate sector has been crucial to India’s overall economic growth. To attract potential investors, the Indian Government has introduced various investment options, including Real Estate Investment Trusts (REITs). The Securities and Exchange Board of India approved REIT regulations in 2014. However, since their introduction, REITs in India have not attracted as many investors as expected. Thereby SEBI notified amendments regarding REITs.

Before learning about the amendments, it’s important to understand what REITs are.

Introduction to REITS

On 26th September 2014, the Securities and Exchange Board of India (SEBI) notified the Real Estate Investment Trusts (REITs) regulations, thereby flagging the path for introduction of an internationally acclaimed investment structure in India. According to the National Association of Real Estate Investment Trusts, REITs or real estate investment trusts are companies that own or finance income-producing real estate across a range of property sectors.

A Real Estate Investment Trust (REIT) is a type of investment fund that owns and invests in real estate properties. It’s similar to other investment funds where a sponsor sets up the fund, raises money from investors, and appoints a manager to oversee it. REITs allow investors to benefit from owning commercial real estate without having to buy properties themselves. Investors in REITs can expect steady income, potential increase in property value, and easy buying and selling of their investment. Both large and small investors can invest their money and gain equivalent benefits. Small investors can combine their funds with others to invest in significant commercial real estate projects. The properties in REITs include data centres, infrastructure, healthcare facilities, apartment complexes, and more.

What’s the New Amendment?

On 8th March 2024, The Securities and Exchange Board of India (SEBI) notified the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2024 to amend the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014. This provision came into force on 08-03-2024.

The amendment increases the ambit of the meaning of the Real Estate Investment Trust (‘REIT’). Earlier with 2014 regulations, REIT meant a trust registered under REIT regulations. However, after the amendment, the definition has been broadened to include that “a person must pool at least Rs. 50 crores for issuing units to 200 investors to acquire and manage real estate assets/ properties. The investor will be entitled to receive the income generated but the day-to-day control of management and operation will not be given to them.”

Another main amendment is that REIT will now include Small and Medium REITS (SM REIT) which has been inserted in these regulations under Chapter VI-B. The amendments provided board view for the board for granting the certificate of registration to the SM REIT.

How these REITs regulations by SEBI can be a game changer?

There is reduction of the minimum ticket size to Rs10 Lakhs, by the Indian Market regulator SEBI, is touted to be a game changer for the new-age fractional investment platforms in the country.  Currently, most fractional ownership platforms require a minimum investment of Rs 25 lakh per investor. Lowering this minimum investment amount is an excellent step towards attracting more investors and increasing liquidity. This brings the small and medium REITs way forward to own multiple assets, rather than pooling their funds in one large commercial asset.

In conclusion, REITs provide attractive risk-adjusted profits and stable cash flow, introduction of these amendments in REITs is a welcoming step which will help in bring in the liquidity, transparency, organised platform and better governance.