New Delhi [India]: Recent regulations issued by the Securities and Exchange Board of India (SEBI) for small and medium real estate investment trusts (SM REITs) have boosted investors' interest towards fractional ownership of real estate assets, according to a report. Expected to increase. CRISIL Ratings.
By enabling stronger investor protection, the newly amended rules are expected to broaden the investor base. However, the rating agency report states that prudent management of operational risks is the key to popularizing the vehicle.
Till now, Fractional Ownership Platforms (FOPs) have not followed similar guidelines. SEBI's latest move aims to address this by bringing existing fractional ownership platforms under the regulatory ambit.
Some of the major regulatory constraints include mandatory investment in operating assets, restrictions on related party transactions, mandatory listing on stock exchanges, etc.
“The SM REIT rules should instill confidence in investors by protecting them from two key risks,” said Mohit Makhija, senior director, CRISIL Ratings.
One, project completion and leasing risks will be reduced as investments cannot be made in under-construction properties. Two, the risk of diversion of funds is expected to be reduced due to ring-fencing of cash flows and mandatory distribution of funds every quarter.
“In addition, the rules should improve transparency and governance,” Makhija said.
Other SEBI regulations include the requirement of at least 200 retail investors, which will provide liquidity.
According to CRISIL Ratings' assessment, SM REITs target a different and differentiated market compared to traditional REITs.
By enabling stronger investor protection, the newly amended rules are expected to broaden the investor base. However, the rating agency report states that prudent management of operational risks is the key to popularizing the vehicle.
Till now, Fractional Ownership Platforms (FOPs) have not followed similar guidelines. SEBI's latest move aims to address this by bringing existing fractional ownership platforms under the regulatory ambit.
Some of the major regulatory constraints include mandatory investment in operating assets, restrictions on related party transactions, mandatory listing on stock exchanges, etc.
“The SM REIT rules should instill confidence in investors by protecting them from two key risks,” said Mohit Makhija, senior director, CRISIL Ratings.
One, project completion and leasing risks will be reduced as investments cannot be made in under-construction properties. Two, the risk of diversion of funds is expected to be reduced due to ring-fencing of cash flows and mandatory distribution of funds every quarter.
“In addition, the rules should improve transparency and governance,” Makhija said.
Other SEBI regulations include the requirement of at least 200 retail investors, which will provide liquidity.
According to CRISIL Ratings' assessment, SM REITs target a different and differentiated market compared to traditional REITs.
