Overview of Amendments
The Securities Exchange Board of India (SEBI) has updated the Real Estate Investment Trusts (REITs) Regulations with the ‘SEBI (REIT) (Amendment) Regulations 2024’. These amendments are designed to facilitate the establishment of Small and Medium REITs (SM REITs), which will encompass both commercial and residential properties, thus regulating the fractional ownership industry more effectively and enhancing investor protection.
Key Features of SM REITs
- Fundraising and Investor Participation:
- SM REITs are allowed to raise a minimum of Rs 50 crore through unit issuance to at least 200 investors.
- This move aims to generate income through the acquisition and management of real estate assets.
- Asset Requirements and Listing:
- Similar to an Initial Public Offering (IPO), SM REITs must ensure that at least 95% of their assets are fully developed and income-generating, a higher standard compared to the 80% for larger REITs.
- Investment and Subscription Criteria:
- The minimum subscription amount per investor is set at Rs 10 lakh, significantly lower than the typical Rs 25 lakh required for larger REITs.
- Investment managers are required to retain at least 5% of the total outstanding units for two years, a reduction from the previously proposed 15%.
- Managerial and Financial Regulations:
- A mandatory 15% co-investment by managers is required, with leverage capped at 49% of the asset value.
- SM REITs are permitted to attract funds from both Indian and foreign investors.
- Operational Structure:
- Assets managed by SM REITs will be organized under schemes operated through Special Purpose Vehicles (SPVs).
- An investment manager setting up an SM REIT must have a minimum net worth of Rs 20 crore.
- Oversight for these REITs will be provided by separate trustees.
- Transparency and Access:
- Investment managers must maintain a dedicated website to detail all SM REIT schemes, ensuring transparency and easy access to information for investors.
SEBI’s Role and Objective
- Regulatory Authority: Securities Exchange Board of India (SEBI)
- Chairperson: Madhabi Puri Buch
- Established: 1992
- Headquarters: Mumbai, Maharashtra
The introduction of these amendments by SEBI marks a significant step towards accommodating smaller scale investors in the real estate market through REITs, promoting inclusivity and safeguarding investor interests by imposing stringent asset development and revenue generation criteria. This regulatory enhancement is expected to stimulate growth in the fractional ownership sector by providing structured and transparent investment opportunities in real estate.
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