SEBI latest proposal to lead to the ‘Dawn of a New Era’ for Fractional Ownership in India

As one of the fastest growing markets in the world, the Indian Commercial Real Estate (CRE) industry today has nearly 800 million square feet of leased office space in the country and has witnessed over a three-fold rise in foreign institutional investments to the tune of $26.6 billion from 2017 to 2022. The industry added a new dimension to it with the introduction of coworking spaces, which today constitutes around a fifth of all office space leasing in the country, and Real Estate Investment Trusts (REITs) which democratized ownership in this space for retail investors. The industry is now looking at another wave of democratization with fractional ownership which removes the entry barrier for retail investors in the commercial real estate market and enables them to own a share in a rental income-generating property with a minimum investment.

The recent announcement by the Securities and Exchange Board of India (SEBI) to propose regulations for online platforms offering fractional ownership in real estate will further democratize and organize this space, making it more attractive for retail and institutional investors. This move by SEBI assumes significance as fractional ownership is a recent development in the Indian market and the positive intervention by the regulator indicates its potential and importance in creating long-term wealth for investors of all classes.

Build investors’ trust in fractional ownership with Real Estate Investment Trusts

According to Sebi’s proposal, any person or entity (including FOPs) which facilitates or has facilitated fractional investment in real estate by any structure whatsoever shall be required to register with SEBI for operating as a Micro, Small, and Medium (MSM) REIT. This assumes significance as REITs already have a defined and proven regulatory structure in terms of the flow of investments which has enabled a seamless investment into REITs while safeguarding investors’ money.

SEBI has also mooted the idea of an MSM REIT having parties such as a trustee, sponsor, and Investment Manager with the sponsor holding a minimum of 15% total units of the MSM REIT and shall have a net worth of at least ₹20 Crores. This assumes significance as it will lead to the creation of trust in the investors’ minds and ensure the long-term viability of the scheme with professionals on board.

Sector to become more attractive for domestic and foreign investors

This move will make the sector more attractive for foreign investors as it adds another avenue for them to participate in the fast-growing Indian Commercial Real Estate industry. With an added layer of regulations, the sector will become more predictable and safe, even for first-time investors who are looking to bet on the success story of CRE in India and create long-term wealth. For domestic investors, it will bring more trust in this fast-emerging new investment tool, and with a minimum investment of Rs 10 lakhs, they can own a share in income-generating properties valued in millions of dollars.

This becomes imperative as India is getting into a new trajectory with the aim to become a $5 Trillion economy by 2032, generating $1 Trillion from the digital economy. Here, the presence of robust commercial real estate with significant cash flow from investors will play a pivotal role in ensuring the economic engine keeps revving and creates a shared value for everyone in the ecosystem- employment seekers, developers, investors, etc. These developments will also contribute to fractional ownership becoming mainstream from a niche investment tool, enabling customers from across the country to participate in one of the most rewarding investment tools at the click of a button.