Fractional Ownership Of Property As Investment Tool To Get Boost From Sebi Regulation: Experts

Market regulator Sebi’s decision to allow the setting up of small and medium REITs will help regulate and propel the growth of new-age investment avenue called fractional ownership of rent yielding real estate assets, according to industry players.

Real estate technology platforms facilitating fractional ownership of rent-yielding properties welcomed the Sebi decision to regulate fractional ownership real estate market, which is still at a nascent stage in India.

Proptech platforms such as YOURS, ALYF, hBits, and WiseX are helping investors in having fractional ownership of primarily office and luxury holiday homes assets. Real estate consultants like Square Yards and 360 Realtors have also entered into this space.

On Saturday, the Sebi board approved amendments to REITs (Real Estate Investment Trusts) Regulations, 2014 in order to create a regulatory framework for the facilitation of Small and Medium REITs (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.

Welcoming the move, Shravan Gupta, Founder and CEO of YOURS — a platform for fractional ownership of luxury second homes — said the Sebi initiative to regulate SM REITs and real estate fractional ownership segment is a positive and necessary step.

“The guidelines proposed by Sebi are crucial for formalising the sector, instilling investor faith, and addressing the complexity of Special Purpose Vehicle (SPV) securities issuances. Particularly beneficial for retail investors unfamiliar with such structures, the regulation is anticipated to contribute to the growth and acceptance of this innovative form of property ownership, aligning with established practices in developed nations,” Gupta said.

Saurabh Vohara, Founder and CEO at ALYF, also hailed Sebi’s action, saying this will help enhance transparency, investor security, liquidity, and seamless exit options within the fractional ownership realm. “This move holds the potential to create a dual positive impact: formalising fractional ownership as an investment class, thereby attracting a segment of portfolios towards a larger market, and fostering the supply of hospitality assets to meet the escalating demand in the travel and hospitality sectors,” he said.

The fractional ownership industry is all set to see a remarkable transformation, Vohara felt.

Shiv Parekh, Founder and Chief Executive Officer, hBits, described Sebi’s approval to set up SM REITs as a “watershed moment” in Indian real estate investment. He said the hBits has always been bullish on the potential of the concept of fractional ownership of real estate assets and its potential in democratising access into real estate for retail investors.

“Sebi’s move to put a regulatory framework on fractional ownership of real estate is a strong testament to trust of the regulator on this new-age investment avenue and it further reinforces our belief on the model,” Parekh said.

The regulator’s move will provide significant impetus to investor confidence and allow them to explore opportunities in the commercial real estate space in much more depth, he added.

Aryaman Vir, CEO at WiseX, termed it a progressive move in regulating the fractional ownership framework.

“Sebi’s acknowledgement on the growing trend of fractional ownership platforms and extending regulatory oversight is commendable. We believe that it will not only foster investor interest in the real estate space but also ensure investor protection, common disclosure practices, and a robust redressal mechanism,” Vir said.

Further, he said the lowered minimum asset value of Rs 50 crore for Small and Medium REITs will open exciting opportunities for investors seeking more accessible entry points into real estate ownership.

The Sebi board approved a regulatory framework for SM REITs that 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.

In August, Sebi had floated a consultation paper for regulating all web-based platforms offering fractional ownership of real estate assets to protect small investors. Such fractional ownership of real estate assets was proposed to be brought as Micro, Small and Medium REITs under Sebi’s REITs rules.

Typically, fractional investment of real estate through Fractional Ownership Platforms (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. Some FOPs are operated by real estate agents or brokers (before the property is purchased) and as property managers thereafter.