Small and Medium REITs

News Excerpt:

The Securities and Exchange Board of India (SEBI) has issued regulations to establish guidelines for the creation of Small and Medium Real Estate Investment Trusts, or SM REITs.

Real Estate Investment Trust (REIT):

  • A REIT is a company that owns and manages real estate properties to generate income.
  • REITs provide an investment opportunity, like a mutual fund, that makes it possible for investors to benefit from valuable real estate.
  • Real Estate Investment Trusts (REITs) have been a game-changer in the global investment landscape, providing investors with a unique proposition to participate in the commercial real estate market.

Small and Medium REITs:

  • In a bid to catalyze the growth of the real estate sector in India, the Securities and Exchange Board of India (SEBI) has introduced an innovative concept – the SM REITs.
  • The concept was introduced through new regulations called Sebi (REIT) (Amendment) Regulations 2024.
  • This move aims to regulate the fractional ownership industry and safeguard investor interests, incorporating both commercial and residential properties within the new framework.

Provisions of the new regulations:

  • SM REITs can raise funds ₹50 crores or more through the issuance of units to a minimum of 200 investors.
    • SM REIT schemes may raise funds from Indian and foreign investors through the issuance of units.
  • The raised funds will be utilized for the acquisition and management of real estate assets.
  • The primary goal is to generate income for the investors through these real estate investments.
  • An investment manager responsible for setting up an SM REIT is required to have a net worth of at least ₹20 crore, and a separate trustee will be appointed for oversight.

Difference between SM REITs and larger REITs:

  • In newly introduced SM REIT schemes, at least 95% of the assets must be fully developed and generate revenue, compared to the 80% requirement for larger REITs.
  • An initial offering for an SM REIT will have a minimum subscription amount of ₹10 lakh per investor, contrasting with the current norm REITs often require an investment of about ₹25 lakh. 

Securities and Exchange Board of India (SEBI):

  • SEBI was constituted in 1988 through a resolution of the Government of India.
  • It was made a statutory body in 1992 under the provisions of the Securities and Exchange Board of India Act, 1992.
    • It was constituted to promote transparency in the Indian investment market.
    • SEBI is headquartered in Mumbai.
  • The functions of SEBI are to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto" 

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