SM REITs: The Democratisation of Real Estate Investment
These REITs allow you to invest in real estate starting from Rs 10 lakh, and earn an income from rental yield and value appreciation
Real estate as a form of investment, if done wisely can give good returns, but this is an asset class that is out of the reach of most retail investors. Most of us would buy one home to stay in and not everyone can buy additional properties to invest in. So, real estate investments were out of reach for most.
Until now, that is. With the coming of (Small and Medium Real Estate Investment Trusts (SM REITs), that is set to change.
Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India explains what they are.
SM REITs are investment vehicles that allow smaller investors to pool their funds to invest in income-generating real estate. They operate by collecting funds from numerous investors, use capital to purchase and manage properties and distribute most of the generated income back to investors in form of dividends.
These trusts acquire, manage, and distribute rental income from properties, making real estate investment more accessible to a broader range of investors. They operate by holding properties through a special purpose vehicle (SPV), and at least 95 per cent of the investments must be in completed, revenue-generating assets.
“In comparison to Real Estate Investment Trusts (REITs), fractional ownership of commercial real estate which is proposed to be ‘SM REITs’ provides a more direct connection to property ownership,” says Shiv Parekh, Founder, hBits, a fractional real estate platform.
New Sebi Regulations Regarding SM REITs
The Securities and Exchange Board Of India (Sebi) has introduced new regulations in 2024 facilitating the participation of smaller investors. Key changes include reducing the minimum asset size requirement to Rs 50 crore and mandating a minimum of 200 investors per trust.
“The investment manager responsible for setting up an SM REIT is required to have a net worth of at least Rs 20 crore, and a separate trustee will be appointed for oversight. An initial offering for an SM REIT will have a minimum subscription amount of Rs 10 lakh per investor. Theregulations also enforce a higher degree of transparency, regular financial disclosures, and improved liquidity by listing these units on the stock exchange,” says Gupta.
How To Invest
Investors can invest in SM REITs through initial public offerings (IPOs) or by purchasing units on stock exchanges where these REITs are listed. Minimum investment per investor is set at Rs10 lakh.
“Available options to invest include -stock exchanges – where SM REITS listed, brokerage firm / banking platforms – ICICI Direct, Zerodha, HDFC securities etc., and specialised investment platforms – allowing for fractional ownership like hBits, Property Share and Strata,” says Gupta.
Expected Returns
“There are two income generation opportunities in the SM REIT segment - rental yield and value appreciation. A KPMG-NAREDCO report projected that the Indian real estate sector is set to record a compounded annual growth rate (CAGR) of 18.7 per cent between 2020 and 2030. In such a thriving ecosystem, rental yields across residential properties range from two to three per cent whereas it is higher in commercial properties like grad-A offices, ranging between eight and nine per cent,” says Harish Fabiani, Chairman, IndiaLand Group.
Compared to traditional REITs, the potential for higher yields comes from a renewed focus on high-growth submarkets and niche segments of real estate. “Moreover, with the real estate segment increasingly embracing sustainable designs and features in their projects, the value of properties, especially in the green real estate segment is bound to surge, creating more opportunities for eco-conscious SM REIT investors,” says Fabiani.
SM REITs thus mark a significant shift in real estate investment space, empowering smaller investors with opportunities previously reserved for larger players. By pooling funds into income-generating properties and adhering to new SEBI regulations, these trusts promise transparency, liquidity, and potential for attractive returns.
