As fractional ownership of real estate assets has gained popularity in India, the recent regulatory framework consultation paper for online fractional ownership platforms by the Security and Exchange Board of India (SEBI)is a proactive approach towards systematizing the industry. This move will build confidence, attract more capital from both domestic and offshore investors, and help institutionalize Fractional Ownership Platforms (FOPs).

SEBI’s proposed regulatory framework under the listed Micro, Small and Medium (MSM) Real Estate Investment Trust (REIT) mandates that FOPs adopt the REIT structure instead of an SPV structure. This will enhance investor protection by imposing disclosure requirements and ensuring fair practices. Additionally, investors would have more transparency about the assets they own, the risks involved, and their fractional ownership rights and obligations. The framework provides explicit provisions for investment strategy disclosures, valuation, liquidation, and exit for investors.

India’s Grade A commercial segment encompasses a staggering 700 million square feet, representing a substantial valuation of over Rs 7 lakh crore in commercial real estate assets. Out of this the three REITs have a market cap of Rs 55,000 crore and with a few additional office REITs expected this could rise to around Rs 1,50,000 crore. However, the access to the traditional REIT frameworks has been limited to a handful of top Indian developers and large foreign funds. India, however, has a great number of credible midsized developers who have not been able to utilize the REIT structure and as per the above numbers, in just the office space, this could amount to about Rs 5,50,000 core worth of assets. MSM REITs is a great initiative by SEBI to open up the exit options for these assets and will give a significant boost to liquidity in a sector that is India’s largest employer.

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Within the proposed SEBI regulatory framework for fractional ownership platforms, several key points directly benefit consumers, ensuring a favorable environment for real estate investments. Let’s explore a few points in detail.

Minimum Investment Size and Stock Exchange Listing: The framework envisions a minimum investment size of Rs 10 lakh, enabling a broad base of investors to participate in fractional ownership. This move enhances accessibility and opens diversification opportunities for a wider range of individuals. Additionally, the requirement for listing on stock exchanges ensures that these fractional ownership investments will be liquid while at the same time adhere to stringent regulatory standards, offering investors a trusted and regulated platform to engage in real estate assets.

Networth and Real Estate Expertise Requirements: The implementation of the SEBI framework encourages credible fractional ownership platforms to flourish while limiting access to fly-by-night operators. These platforms would bring with them a robust network and deep expertise in real estate investments. By collaborating with reputable asset managers, fractional ownership platforms can curate portfolios of only the highest quality assets. This ensures that investors gain access to income-generating properties backed by comprehensive due diligence and market insights, instilling confidence, and trust among consumers.

Disclosure, Valuation, and Transparency: The SEBI framework emphasizes transparency and investor protection through stringent disclosure requirements. Fractional ownership platforms are mandated to disclose comprehensive information about the assets, investment strategies, associated risks, and investors’ rights and obligations. Additionally, SEBI’s requirement in valuation processes and oversight ensures that the assets’ value is determined objectively and fairly. This transparency and oversight mechanism foster investor confidence, enabling them to make informed decisions about their fractional ownership investments.

In conclusion, SEBI’s regulatory framework for fractional ownership platforms in India signifies a monumental step towards empowering investors and revolutionizing the real estate market. With reduced investment sizes, stock exchange listings, credible platforms, and enhanced transparency, this framework offers a secure and accessible environment for fractional ownership. It paves the way for a more robust, transparent, and prosperous future, benefiting investors, platforms, and the entire industry.

(By Shiv Parekh, Founder, hBits, a fractional real estate platform. Views are personal)