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17 August, 2023
Investors in India are gradually moving towards a new investment avenue, fractional ownership. SEBI has further streamlined the regulatory framework to boost this type of investment. The proactive stance from the regulatory body is all set to attract more capital from offshore as well as domestic investors.
The proposed regulatory framework under MSM REITs makes it mandatory for Fractional Ownership Platforms (FOPs) to adopt the REIT structure rather than the SPV structure. This significantly boosts the protection of investors as some disclosure requirements are involved to ensure fair practices. Besides, investors would enjoy a greater degree of transparency on the assets they own, involved risks, and their obligations of fractional ownership. The framework explicitly rolls out provisions for investment valuations, strategy disclosures, exit strategies, and liquidation for investors.
The Grade A commercial segment of India encompasses 700 million sq. ft. This is valued over 7 lakh crore in assets under the commercial real estate section.
There are several important points under the proposed regulatory framework of SEBI that would benefit consumers directly. This would deliver a favorable environment for real estate investments.
Here are some of the key aspects to observe under the regulations.
According to the legal framework, the minimum investment in fractional ownership should be INR 10 lakh. This would allow a significant number of investors to participate in fractional ownership. This decision also enhances accessibility to investment and diversifies the opportunities for more investors.
Besides, the authorities require REITs to be listed on stock exchanges. This would enhance the liquidity of fractional assets. At the same time, investors would benefit from a regulated and trusted platform to participate in real estate investments.
The SEBI framework encourages authentic platforms of fractional ownership to flourish, while restricting the access to fly-by-night operators. These platforms should have a substantial expertise and strong network in real estate investments. Fractional ownership platforms need to collaborate with reputable asset managers to curate portfolios having the best quality of assets. This grants investors access to properties that generate income, backed by comprehensive due diligence and market insights. This instils trust and confidence among consumers.
SEBI largely focuses on protecting investors and transparency through proper disclosure of the requirements. Therefore, it is mandatory for fractional ownership platforms to disclose comprehensive information about investment strategies, assets, and the risks associated. Investors need to know their rights and obligations properly. Also, the requirement of SEBI in asset valuation and oversights makes sure that the value of the assets is determined fairly and objectively. This oversight and transparent mechanism instils confidence among investors, which enables them to make informed decisions on fractional ownership.