SM REITs: A revolutionary new asset class

SM REITs

Regulated by SEBI. Enables a regulated, compliant and transparent way of investing in commercial real estate.

DOD filed, IPO opens soon

Propshare Platina

PROPSHARE PLATINA

PropShare’s 1st SM REIT

FAQs

What is an SM REIT?

SM REIT stands for Small and Medium Real Estate Investment Trusts and they are a subclass within the REIT framework that provides access to individual investors to rent yielding real estate like office buildings, retail malls, hotels, hospitals etc. that are valued between Rs. 50 and 500 crores. Similar to REITs, SM REIT units will also be traded on the stock exchange and are regulated by the Securities and Exchange Board of India (SEBI).

Why did SEBI introduce SM REITs regulations?

SEBI introduced the SM REIT regulations with the objective of making smaller real estate assets valued between Rs. 50-500 crores more accessible to the retail and institutional investors. Mainboard REITs are only allowed to list assets over Rs. 500 crores but there exists a significant market of rent yielding assets valued less than 500 crores that can also be monetized through a listed and regulated trust vehicle on the same lines as mainboard REITs. The SM REIT regulations also helped bring the existing fractional ownership platforms within the regulatory ambit.

When will the first SM REIT be available for investing?

SEBI has issued regulations for the listing of SM REITs and Property Share has received the first SM REIT registration certificate in India. The availability of the first SM REIT shall be contingent upon the filing and requisite approval of the draft offer document from the SEBI.

What is the minimum ticket size?

The minimum investment shall be in units of Rs 10 lakh and additional investments would be in multiples of Rs 10 lakhs.

Taxation on sale of units for unitholders

Period of Holding	Tax rates*
More than 12 months (LTCG)	12.5% on gains exceeding INR 1.25 lacs
Less than or equal to 12 months (STCG)	20%

Taxation on income distribution for unitholders

Income recipient	Nature of income	Tax rates*
Resident unitholders	Interest income Qualified dividend income Disqualified dividend income Any other income taxable in the hands of Scheme Any distributions other than the above	At applicable tax slab rates^ Tax exempt At applicable tax slab rates^ Tax exempt Taxable once such distributions exceed the issue price of unit^
Non-resident unitholders	Interest income Qualified dividend income Disqualified dividend income Any other income taxable in the hands of Scheme Any distributions other than the above	5%^ Tax exempt At applicable tax slab rates^ Tax exempt Taxable once such distributions exceed the issue price of unit^

Income recipient

Nature of income

Tax rates*

Resident unitholders

Interest income

Qualified dividend income

Disqualified dividend income

Any other income taxable in the hands of Scheme

Any distributions other than the above

At applicable tax slab rates^

Tax exempt

At applicable tax slab rates^

Tax exempt

Taxable once such distributions exceed the issue price of unit^

Non-resident unitholders

Interest income

Qualified dividend income

Disqualified dividend income

Any other income taxable in the hands of Scheme

Any distributions other than the above

5%^

Tax exempt

At applicable tax slab rates^

Tax exempt

Taxable once such distributions exceed the issue price of unit^

*Check with the tax advisor for details as applicability may vary under certain scenarios. Tax rates are excluding applicable surcharge and cess.

^The income shall be subject to deduction of tax at source

What is the process for investing in SM REITs?

An SM REIT will come out with an initial public offering for every new scheme and the process of investing is therefore the same as investing in an IPO. You can subscribe to the listing directly via your demat account and can also purchase units of previously listed SM REIT schemes from the stock exchange. Further, please note that this is subject to further guidance, circulars or notifications to be issued by the SEBI and stock exchanges.

Who selects and manages the assets for SM REITs?

The investment manager selects, acquires, manages and sells the assets for all schemes.

What fees does the Investment Manager charge?

The investment manager charges a fee in terms of the investment management agreement executed amongst the Trustee and the Investment Manager . The details of the fee are provided in the offer document and on the website of the investment manager.

What are the risks of investing in an SM REIT?

There are risks to investing in an SM REIT, amongst others - vacancy risk and exit risk. Vacancy risk is the risk that the tenant in the asset will vacate the property prior to the culmination of the tenancy in the future at which point the asset will need to be re-leased, which may lead to a temporary loss of income. Exit risk is the risk that that asset may take a longer period to sell than expected, especially in cyclical market conditions.

SM REITs vs Regular REITs

SM REITs have a distinctive single asset investment model that allows investors to choose cities and micro markets.

	SM REITs	Regular REITs
Choice of assets	Yes	No
Investment strategy	Focused single asset approach	Portfolio of multiple assets
Types of assets	100% leased	Leased, under construction & land
Under construction assets	Not permitted	Up to 20% of the value of REIT is permitted
Size	Rs. 50 - 500 crores	> Rs. 500 crores
Listed	Yes	Yes
Hold period	4-6 years	Long-term
Minimum trading lot	Rs. 10 lakhs	One unit
Related party transaction	Not allowed	Allowed