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The Securities and Exchange Board of India-SEBI sat down this week to discuss a proposal that plans to bring fractional ownership within its purview. What does this mean for the investor with vested interests in fractional ownership realty assets?
That’s what we’re here to decode: In this article we’ll go through the proposed framework to bring fractional ownership under the ambit of the market regulator, and what it means for the real estate market, investors, and fractional ownership platforms.
SEBI’s Nod To Small & Medium REITS
In what is being seen as a pathbreaking move and a milestone in the short (so far) history of alternative investment in real estate, the Indian market regulatory authority (SEBI), in its recent board meeting approved a number of amendments to the SEBI (Real Estate Investment Trusts) Regulations 2014 (REIT Regulation). Now this is groundbreaking for two reasons:
- Empowering Small & Medium REITs: Redefining the Minimum Threshold
This decision by SEBI is no short of a paradigm shift. Under the earlier 2014 regulations, the minimum threshold for existing REITs was Rs 500 crore. Now that SEBI has approved a minimum asset value of Rs 50 crore, it will open previously locked doors for smaller and medium sized REITs to take center stage.
A large number of investors will also get the opportunity to embark on a new investment journey with an asset class which was previously not accessible to them. SEBI has seen the market demands for diversified options and has chosen to act. Assetmonk recognises and welcomes the diversified options being brought under the regulatory authority which will only lead to more inclusivity and democratisation of the real estate market.
- The Potential of Fractional Ownership in an Expanding Market
As per SEBI chairperson Madhabi Puri Buch, there is growing space in the market for smaller sized REITs, and this expansion of the asset class will cater to those investors seeking these smaller sized REITs and looking to diversify their options.
The fractional ownership market in India jumped from Rs 1500 crore in 2019 to about Rs 4000 crore in 2023. As per SEBI, the regulatory framework approved by the board requires the migration of existing structures meeting a certain criteria, and also certain obligations of the investment manager.
These include net worth, certain years of experience, minimum asset requirement, investment conditions, valuation of assets, and so forth.
What does this Mean For FOPs?
As per the chairman, the move comes after the rise of several web based alternative investment platforms offering fractional ownership of commercial real estate assets. Basically, in a way, SEBI has proposed to increase the framework of REIT regulations by reducing the minimum asset value required to Rs 50 crore. By doing so it has sought to bring fractional ownership platforms under its eye so the market for these real assets can grow in a healthy way.
Impact On Investors
This move not only formalises fractional ownership as an asset and investment class, it also protects the interests of investors. Ultimately, the aim of FOPs and alternative investment is to democratise real estate investment and make the market accessible to investors who were earlier barred from doing so: Due to a high minimum entry ticket requirement.
As per industry estimates, total investment in the joint ownership space currently stands at Rs 3500 crore, and it is only expected to increase. The time is not far when fractional ownership will be seen as another lucrative household investment option: Such as mutual funds, insurance, and so on.
Other Insights From SEBI’s Consultation Paper
SEBI’s decision is based on its recognition of the changing real estate landscape, particularly the rise of web-based platforms offering fractional ownership. SEBI launched a consultation paper on May 12 in response to the shifting dynamics, recognising the need to adapt to the changing digital environment.
Other Key Developments
In its meeting, SEBI has also introduced a regulatory framework for index providers. And made amendments to the SEBI (Alternative Investment Funds) Regulations, 2012: This has been done to strengthen the ease of compliance and also safeguard the interests of investors in alternative investment funds.
Structural Integrity: How Fractional Ownership is Redefining the Real Estate Sector
The fractional ownership model works through web based FOPs which acquire funds from investors to purchase stakes in high-value commercial real estate that is available for lease.
The majority of these properties are commercial, but there have been instances of residential complexes and luxury vacation homes coming under the co-ownership model, which could be an interesting area to explore in the coming years.
Assetmonk: Navigating The Real Estate Landscape
Assetmonk, an alternative real estate investment platform aligns seamlessly with SEBI’s vision to provide investors a secure and innovative space to engage in fractional ownership. Assetmonk is a gateway to diverse, inclusive, and personalised investments in the commercial real estate space with high IRR and potential for growth.
We are ready to facilitate investors looking to diversify their portfolios and seeking to invest in fractional ownership by providing a user-friendly interface and a diverse range of investment options.
Read More
Empowering Investors: SEBI To Regularize Fractional Ownership
Fractional Ownership Real Estate India
FAQs
Q: What is the fractional ownership scale in India?
A: In India, the fractional ownership market grew from Rs 1500 crore in 2019 to around Rs 4000 crore in 2023, indicating a significant increase in interest and investment.
Q: What impact will regularisation of fractional ownership have on investors?
A: SEBI’s decision formalises fractional ownership as an asset class, protecting investors’ interests while also attempting to democratise real estate investment by lowering the minimum entry ticket requirement.
Q. Are Fractional Ownership Platforms (FOPs) regulated in India?
A: Not yet, but the Securities and Exchange Board of India (SEBI) has approved a proposed amendment to create a regulatory framework for small and medium Real Estate Investment Trusts (REITs) under the fractional ownership model.
Q: What is fractional ownership?
A: Multiple investors pool their resources to co-own a valuable property under the concept of fractional ownership. Instead of purchasing the entire property, each investor purchases a fraction or share of it.
