Retail Investors Can Opt for Fractional Shares in Rental Property Market

There's good news for investors looking to enter the real estate market without making huge investments. Thanks to the recent notification by the Securities and Exchange Board of India (SEBI), investing in rent-yielding real estate assets through fractional ownership has now become more accessible. This change is anticipated to bring a significant positive shift in the real estate investment landscape, particularly for small and medium investors.

An Overview of SEBI's Regulation

On March 8, SEBI finalized amendments to the Real Estate Investment Trusts (REITs) regulations, thereby formalizing the concept of Small and Medium REITs, also known as SM REITs. The adjusted regulations enable fractional ownership, making investment in commercial and residential properties more viable for a broader audience. Until recently, large capital was required to enter the property investment market, but with the introduction of SM REITs, individuals can now begin investing with a minimum of Rs 10 lakh.

The Impact on Fractional Ownership Market

Fractional ownership allows multiple investors to pool their resources to acquire stakes in property assets. Each investor owns a share proportionate to their investment, earning rental income and benefiting from property appreciation. Property assets valued between Rs 50 crore and Rs 500 crore can be slotted under SM REITs, and SEBI has set the unit price at a minimum of Rs 10 lakh, subject to future changes.

Established as a way to democratize real estate investment, fractional ownership platforms (FOPs) issue securities via Special Purpose Vehicles (SPVs) that purchase property assets. These platforms have been key to enabling retail investors to secure a fraction of real estate assets economically, which was once a playing field dominated by the wealthy. The updated regulations are expected to enhance investor protection and stimulate market participation.

Industry experts have welcomed the new framework, acknowledging its potential to open up opportunities for retail investors in high-value real estate assets. By reducing the entry investment amount, SEBI's move attempts to include a more extensive section of investors in real estate investments previously considered out of reach.

fractional, ownership, realty