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SM REITs: How SEBI's game-changing move will transform India's real estate investment landscape | Property Share

By Abhishek Katiyar

12 Feb, 2024 | 4 MIN READ

Commercial real estate (CRE) has long been an attractive investment avenue for those seeking to diversify their portfolios and capitalise on the stability and income potential of real property. 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. In a bid to catalyse the growth of the real estate sector in India, the Securities and Exchange Board of India (SEBI) has plans to introduce an innovative concept – the SM REITs.

 

These SM REITs, with a reduced minimum asset size of INR 50 crores, aim to foster a broader range of real estate investments while ensuring transparency, control, and credibility for investors. The minimum ticket size of INR 10 lakhs provides accessibility to retail investors while maintaining a certain level of sophistication. This article explores the key features and advantages of SM REITs, comparing them to traditional models and drawing parallels with global small-cap REITs.

 

Transparency, control and niche targeting

 

SM REITs adopt a niche-targeted approach that allows investors to choose specific asset-focused schemes, offering transparency and control that goes beyond traditional blind pool investments. This provides investors with a clear understanding of the modalities and fundamentals of their investments ensuring a level of customisation and transparency that aligns with their evolving preferences.

 

Mandatory sponsor commitment and credibility

 

SM REITs maintain the core structure of traditional REITs, comprising a Trustee, Sponsor/sponsor group, Investment Manager, and investors as primary stakeholders. Notably, in these MSM REITs, the Investment Manager and Sponsor can be the same entity. The proposed regulations ensure mandatory Sponsor commitment, fostering a 'skin in the game' mindset, and set minimum net worth requirements for the Investment Manager and Sponsor, enhancing overall credibility.

 

Enhanced liquidity, easy transferability and low volatility

 

Listing units on stock exchanges introduces fair pricing, robust risk management, guaranteed settlement, high liquidity and easy transferability. Unlike the traditional models in the CRE investing space with long investment horizons, SM REITs allow investors to exit at a time and price of their own choosing. Despite being a listed product, volatility remains low due to the backing of fairly stable assets.

 

Standardised regulations, risk mitigation and investor protection

 

The transition from the earlier models to a more structured approach in SM REITs is a paradigm shift towards investor protection. Standardised regulations, Know Your Customer (KYC) norms, grievance redressal mechanisms, and the oversight of regulatory bodies collectively fortify investor confidence. The non-permissibility of investing in under-construction assets mitigates the risk of non-completion and disruption in returns. This prudent measure safeguards investors from uncertainties associated with projects still in progress, aligning with the aim of providing secure, stable and predictable returns.

 

Conclusion

 

Incorporating SM REITs into an investment portfolio offers investors a unique combination of stability, income generation, and growth potential. Drawing inspiration from global practices, the introduction of SM REITs in India has the potential to mirror the success of small-cap REITs, single-asset REITs in other markets, such as the United States and the UK. This represents a progressive stride in the Indian real estate investment landscape. By incorporating transparency, control, credibility, and investor protection, these REITs aim to stimulate further growth in the real estate sector and related segments of the economy. As India embraces this innovative approach, the SM REITs have the potential to become a catalyst for a more inclusive and vibrant real estate investment ecosystem.

 

The article has also been published on LiveMint.com on 12th February, 2024

(https://www.livemint.com/money/personal-finance/msm-reits-how-sebis-game-changing-move-will-transform-indias-real-estate-investment-landscape-cre-property-11707305083693.html)