Synopsis: The Securities and Exchange Board of India (SEBI) decision to establish regulatory guidelines for small and medium real estate investment trusts (SM REITs) is anticipated to enhance retail and institutional investor participation, institutionalize the segment, and attract increased capital from domestic and international investors. This regulatory framework is expected to instill confidence, fostering wider acceptance of the growing asset class and providing vital support to real estate developers seeking to monetize assets and inject liquidity into the sector.

The Securities and Exchange Board of India (Sebi) decision to create a regulatory framework for the facilitation of small and medium real estate investment trusts (SM REITs) is expected to boost participation of retail investors, institutionalise the segment, and encourage greater capital influx from both domestic and offshore investors.

The establishment of regulation is poised to bolster investor confidence, expanding acceptance for the burgeoning asset class. This initiative is anticipated to provide crucial support to realty developers, offering an additional avenue to monetize assets and infuse much-needed liquidity into the sector.

"With the approval of Micro-REIT guidelines, finally we will soon have a new asset class available to investors to provide secured and stable returns even in a small real estate asset as low as Rs 50 crore," said Anuranjan Mohnot, MD, Lumos Alternate Investment Advisors.

According to him, the new regulation has provided more clarity on the regulatory framework for raising money from the public at large outside Alternate Investment Fund (AIF) with due accountability and skin of the investment manager in the entire scheme.

While the finer details are awaited, checks and balances covered in the draft paper released by the regulator in May is likely to make way in the regulations."SEBI's move is a strong testament to the trust of the regulator on this new-age investment avenue and it further reinforces our belief in the model. India has around 800 million sq ft of Grade A office space with a steadily rising demand. The regulator's move will provide significant impetus to investor confidence and allow them to explore opportunities in the CRE space in much more depth," said Shiv Parekh, Founder and CEO, hBits.

The micro-REITs will be able to list with an asset value of at least Rs 50 crore as against minimum asset value of Rs 500 crore for existing REITs. The SM REITs will also be able to create separate schemes for owning realty assets through special purpose vehicles constituted as companies.

"This move signifies the strengthening of the segment and reflects increasing demand from investors. The guidelines will be beneficial for retail investors unfamiliar with such structures and the regulation is anticipated to contribute to the growth and acceptance of this form of property ownership, aligning with established practices in developed nations," said Shravan Gupta, founder and CEO of YOURS, platform for fractional ownership of luxury second homes.

In the May discussion paper, Sebi had proposed that such platforms be registered under the Regulatory Framework for Micro, Small and Medium REITs (MSM REITs). Each should have separate trustees, sponsors, and investment managers. These schemes will not be allowed to raise debt.