The real estate investment landscape in India is undergoing a significant transformation. With the introduction of Small and Medium Real Estate Investment Trusts (SM REITs) under the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024, the Securities and Exchange Board of India has opened new doors for investors and fractional ownership platforms alike.
Notified on March 8, 2024, these changes lower REIT entry barriers and bring long-awaited regulatory clarity to the fractional ownership ecosystem. Here's a comprehensive look at what the amendment entails and what it means for future real estate investments in India.
The Shift from High-Value to Inclusive Investing: SEBI’s 2024 Amendment on SM REITs
Until now, Real Estate Investment Trusts (REITs) in India were limited to large-scale projects with a minimum asset value of ₹500 crores. This excluded a vast segment of smaller but viable commercial properties from participating in this regulated investment format. SEBI’s new framework reduces the minimum asset value requirement for SM REITs to ₹50 crores, expanding access to a broader pool of investors.
The amendment comes in response to fractional ownership's growing popularity, a model allowing multiple investors to co-own high-value assets. While innovative, fractional ownership operated in a regulatory grey area, raising concerns over investor protection. SEBI’s move brings these platforms under formal oversight, helping to safeguard investor interests.
Key Highlights of the Amended Regulations
Valuations are essential for ensuring transparency, accuracy, and investor trust. Here are the key requirements to be followed:
Redefinition of REITs
The REIT definition now includes SM REITs, which must pool at least ₹50 crores and issue units to at least 200 investors. However, these regulations will not cover companies owning property and raising funds directly through securities (like CCDs) outside the SM-REIT framework.
Trust-Based Structure
SM REITs must be structured as trusts, with a registered trust deed under the Registration Act, 1908. A Special Purpose Vehicle (SPV), wholly owned by the REIT scheme, will hold and control the underlying real estate assets.
Investment Manager Requirements
Must be an Indian company with a net worth of at least ₹20 crores (₹10 crores in liquid assets).
Must have prior experience of 2 years in real estate or fund management, or appoint qualified personnel with 5 years of experience each.
May also act as the sponsor of the REIT.
At least 50% of the directors must be independent.
Mandatory Listing and Public Participation
To ensure transparency and ease of investor exits, SM REITs must list their schemes on a recognized stock exchange. Each scheme must offer a minimum of 25% of its units to the public, with each unit priced at no less than ₹10 lakhs.
This requirement is likely to enhance liquidity and reduce risk, making SM REITs a more attractive vehicle for both institutional and retail investors.
Investment and Operational Conditions
Allocation of Assets: Each scheme must invest 100% of its assets in completed, revenue-generating properties. No under-construction or speculative real estate is permitted.
SPV Ownership: All real estate assets must be held solely through the SPV. The REIT or SPV may not lend to third parties.
Leverage Limit: Borrowings must not exceed 49% of the asset value, and crossing 25% requires credit ratings and unitholder approval.
Valuation and Disclosure Standards
To ensure transparency and accuracy, specific guidelines must be followed when conducting property valuations. These include timing, qualifications, and reporting standards:
- Valuations must be conducted annually and after any material event.
- An independent valuer with a minimum of 5 years of real estate experience must perform the valuation.
- Each valuation must include a physical inspection of the property.
- Reports must be submitted within two months of the financial year’s end.
- Valuations used for unit issuance must be no older than six months.
Distribution and Investor Rights
To SM REIT: SPVs must distribute 95% of their net distributable cash flows to the SM REIT scheme.
To Unitholders: Schemes must distribute 100% of their net distributable cash flows quarterly. Delays in payouts trigger a 15% annual penalty interest, which the investment manager bears.
Raising Capital and Funding Options
SM REITs can raise funds from Indian and foreign investors, subject to RBI and government regulations. Leverage is permitted if declared in the offer document, and capital can be raised via unit issuance, borrowing, or debt instruments.
SPVs can raise funds only through equity from the scheme or through debt (if permitted under regulations). All borrowing and funding mechanisms must adhere strictly to SEBI norms.
Taxation Framework
SM REITs will be treated as ‘Business Trusts’ under Chapter XII-FA of the Income Tax Act, 1961, offering a specialized tax regime for both the trust and unitholders.
Migration Provisions for Existing Structures
Entities owning real estate can migrate into the SM REIT framework within six months from the amendment’s notification. A detailed migration plan must be submitted along with the registration application, and completion is expected within six months of approval.
Key Differences from the Original Consultation Paper
Not all proposals from SEBI’s May 2023 consultation paper made it to the final amendment. Notable exclusions include:
- The requirement of at least 20 unrelated investors.
- A 25% cap on any single investor's subscription.
- Separate individuals for sponsor and investment manager roles.
- Minimum net worth for investment managers increased from ₹10 crores to ₹20 crores in the final version.
How We Help You Invest in SM REITs at hBits
At hBits, we specialise in Small and Medium Real Estate Investment Trusts (SM REITs). With our deep expertise and streamlined process, we help retail and HNI investors confidently access commercial real estate opportunities. Here's how we make the entire journey simple, secure, and transparent.
Step 1: We Start by Helping You Understand SM REITs
Before you invest, we ensure you’re clear about what SM REITs are and how they work within SEBI regulations.
- SM REITs allow you to invest in income-generating commercial properties without owning them directly
- They are regulated by SEBI, ensuring credibility and investor protection
- You benefit from portfolio diversification and passive rental income
- Risk is generally lower than direct property ownership but still depends on market and asset performance
- All fees are transparent and governed by SEBI’s framework
Step 2: We Help You Set Up the Right Account
To participate in SM REIT IPOs, a Demat and Trading account is essential. We make sure you’re fully prepared.
- We guide you in opening a Demat and Trading account with a SEBI-registered broker
- Most brokers offer quick online registration, and we assist you in choosing a trusted platform
- This account allows you to apply for IPO units and trade them once listed
- Working with reliable brokers ensures lower fees and smoother transactions
Step 3: We Walk You Through the Application Process
Once your account is ready, we help you apply for SM REIT units with ease through multiple channels.
- Use online ASBA through your internet banking or platforms like ICICI Direct
- Submit a physical application at any ASBA-enabled bank
- Download and submit an e-form from the BSE website via your bank
- Your funds are only blocked if your application is accepted, keeping your capital secure
Step 4: We Keep Track of the Allocation Process
After the IPO closes, we monitor the allocation of units and make sure you’re kept in the loop.
- Allocation is done through BSE or NSE based on investor demand
- We help you track the status of your application
- You receive confirmation directly in your Demat account or via your broker dashboard
Step 5: We Assist You Once Units Are Listed
Once the units are listed on the exchange, we support you in managing and trading them effectively.
- You can buy or sell SM REIT units on the stock exchange like regular shares
- We help you monitor trading activity and market prices
- You can compare across listed REITs to make well-informed investment choices
Step 6: We Help You Monitor and Optimise Your Investment
We don’t just stop at helping you invest. We actively support you in tracking performance and making strategic decisions.
- We share updates on rental distributions so you can track your cash flow
- We monitor property valuations to help you understand long-term growth
- We keep you informed about market movements and industry trends
- This allows you to assess performance and take timely action when needed
At hBits, our experience goes beyond transactions. We focus on long-term support, education, and performance tracking so your investment in SM REITs is not only simple, but also rewarding.
Final Thoughts
SEBI’s 2024 amendment signals a strong regulatory embrace of India’s growing fractional real estate market. By creating space for SM REITs, the regulator has made it easier for smaller investors to access real estate as an asset class, while bringing much-needed compliance and governance.
Still, implementation will be key. Migration of existing structures may face practical challenges, and industry players will need to adapt swiftly to new compliance standards. Yet, with stronger transparency, investor protections, and an expanded market, SM REITs could mark the next big phase in real estate investing in India.