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The real estate sector in India has seen a sea change in the last couple of years due to some key regulatory reforms such as the RERA Act of 2016, the introduction of GST, and the regulations for REITs formed in 2014. This set of reforms has brought in better transparency and accountability, and therefore the assurance, that is sought by the investors.
Outstanding among such developments is the emergence of Small and Medium Real Estate Investment Trusts, more commonly known as SM REITs. To this end, SM REITs became a game-changer mainly for individual investors in their quest for financial freedom.
How SM REITs Pave the Way for Financial Freedom
Traditionally, real estate investments in India have been the forte of HNIs and large institutional investors. High market entry costs, high capital requirements, and overall lack of liquidity kept the average retail investor away from this market, more so from the commercial real estate segment. That is changing now.
The emergence of fractional ownership platforms and SM REITs has swept these obstacles aside and opened up this very lucrative asset class to a larger audience.
Opening SM REITs towards more affordable and attractive investment in commercial properties for retail investors, the reduction of the minimum investment requirement from INR 25 lakh to INR 10 lakh is beyond mere reduction in entry barriers; it is an attempt at new emergent avenues towards creating wealth and financial freedom across the nation.
This additional requirement of the listing in dematerialized form has added to the investment process in terms of more transparency, better price determinants, and higher liquidity. This, in turn, gives investors more flexibility and confidence to handle their portfolios, opening up more avenues toward a wider and financially empowered investment base in India.
Benefits of Investment in SM REITs for Indians
Here we explain the major benefits of SM REITs:
- Steady Income and Capital Appreciation
The merits accruing from investment in SM REITs are two major benefits, namely regular income through rental yields and capital appreciation in the potential future. Unlike the traditional real estate investment which generally rests their hope on the future value of under-construction properties facing various risks such as unoccupied spaces, SM REITs invest in completed revenue-earning properties.
Due to the fact that SM REITs have a regulation that obliges them to invest 95% of their assets in such properties and the remaining 5% in liquid assets, they therefore offer an investment avenue that is more predictable and less volatile. This goes quite well with long-term goals for financial freedom.
- Risk-Adjusted Returns
Regulators put minimum criteria on the FOPs to have the worth with experience either in real estate or in fund management. The “skin in the game” approach ensures that FOPs invest at least 5% in every property, hence minimising risk exposure for retail investors. For property developers, SM REITs allow ways to ease capital outlays and reduce leverage on their books.
This is how property developers, by unlocking the value of their properties through the medium of SM REITs, enhance liquidity, finance new projects, and reduce their debt ratios. This serves to increase financial flexibility and also allows facilitation of a more functional and robust real estate market.
- The Future of Indian CRE and Financial Freedom
The Indian commercial real estate market is set to record high growth on the back of rapid urbanisation, economic expansion, and increasing demand for office spaces, retail centres, and logistics facilities. Cities such as Mumbai, Delhi, Bangalore, Hyderabad, Chennai, and Pune are the front runners of this growth, thereby presenting manifold opportunities for investors. During the next few years, Tier II and Tier III cities are most likely to give a major fillip to the real estate market.
According to Colliers India, this could unlock more than INR 4,000 crore real estate assets in the near to mid-term due to SEBI regulating such fractional ownership platforms through SM REIT guidelines. Such regulations will protect the interest of not only investors but also encourage more investors into the CRE market for higher economic growth and job creation.
Conclusion
The introduction of SM REITs will really mark the introduction of a sea change in the real estate investment landscape of India. Allowing retail investors to participate in commercial real estate, Small Market REITs democratise wealth creation and help people across the country realise financial freedom. Fractional ownership is, thus, a slowly developing industry in this country. To that end, SM REIT would shape the future of real estate investment in India by giving a well-defined, accessible, and efficient route towards financial freedom on all counts.
Assetmonk is an alternative investment platform that focuses on providing fractional ownership in high-quality commercial properties. It allows investors to participate in fractional real estate investments, enabling them to own a share of premium properties and earn rental income.
