SM REITs Encouraging Retail Participation In Real Estate: Experts

The booming real estate market in India, which has the potential to contribute to the USD 5 trillion Indian economy, also presents an opportunity for investors to diversify their portfolios. However, the requirement of a hefty fund and the liquidity threat have been barriers for investors. 

However, the conception of real estate investment trusts (REITs) for fractional ownership and ease of exit attempted to democratise real estate investment. Besides, small and medium (SM) REITs cater to smaller markets, making them an attractive option for novice and seasoned investors seeking both stability and growth.

Muppa Choudhary, VP, Naredco, during the 16th National Convention of Naredco, reiterated the concept of SM Reits and said, “Such REITs are very popular in the US Market, however in the Indian market, REITs started to emerge after 2014. They were kept outside the jurisdiction of Sebi, which created a trust deficit among investors. Subsequently, Sebi was entrusted to regulate REITs, leading to their listing on the Indian bourses in 2019. SM REITs present an immense opportunity for retail investors to participate in the real estate business, ensuring credibility and growth.”

To create a regulatory framework for the development of SM REITs, with an asset value of at least Rs 50 crore as opposed to the minimum asset value of 500 crore for existing REITs, the Sebi board adopted modifications to the REITs Regulations, 2014 in November 2023 to encourage investments.

“In tier 2 cities market value and purchase value have a huge difference, indicating the importance of fractional ownership. Currently, REITs valued at Rs 50,000 crore and capital market surpluses which have inflated the value of stocks and start-ups should be diverted towards real estate through REITs, whereas real estate prices are realistic. However, real estate is prone to fraud and must be operated with sensitivity to ensure no fault to keep stakeholder participation,” said Sunil Jain, VP, Naredco, Rajasthan.

Speaking at the event, Shiv Parekh, Founder and CEO, HBits and Sudarshan Lodha and Co-founder, Strata highlighted the feasibility of REITs. Parekh said, “Sebi declaration to impose network and experience requirements as well as individual investors not obtaining more than 25 per cent stake ensure no manipulation in SM REITs. influencing.”

Lodha added that investors look for quality assets and exit options and REITs are a suitable option of indirect exposure in real estate. Other alternatives, such as fixed deposits, demand long-term commitment and stock investing poses a threat to wealth preservation due to its volatility. 

"Whereas REITs can generate up to 20 per cent returns and after its listing, REITs reduce long-term capital gains (LTCG) gains from 20 per cent to 10 per cent in addition to their listing gains. The challenge of scouting a decent real estate unit in a hyperlocal ecosystem is fairly addressed in REITs," Lodha stated.