Unlocking Growth: A Complete Guide to Small and Medium Real Estate Investment Trusts (SM REITs) in India


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March 8, 2024, marked a pivotal moment in India’s real estate sector as the Securities and Exchange Board of India (SEBI) introduced a groundbreaking framework tailored specifically for Small and Medium Real Estate Investment Trusts (SM REITs). This strategic move aims to address the rising interest in fractional ownership platforms (FOPs) and enhance transparency and coherence in this specialized segment of the real estate market.

Understanding Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts, or REITs, are entities that own, manage, or finance income-generating real estate properties. Similar to mutual funds, REITs provide investors with diversified exposure to real estate assets across various sectors, eliminating the need for individual property management or financing.

Mitigating Unregulated Platforms and Narrowing the Divide

The motivation behind SEBI’s initiative stems from the increasing number of web-based FOPs in recent years. While these platforms facilitated fractional ownership in residential and commercial properties, concerns emerged regarding their unclear operational models, unclear exit strategies, and potential violations of public offering norms. The existing REITs framework, established in 2014, primarily targeted large-scale income-generating assets, leaving a significant portion of the real estate market inaccessible to retail investors. SM REITs aim to bridge this gap by introducing a substantially reduced entry point of INR 50 crore for completed and income-generating assets.

Structural Overview of SM REITs

The structural framework of SM REITs shares similarities with traditional REITs but includes distinctive features. Here’s a summarized overview of the key guidelines:

Structure: SM REITs must be structured as trusts, holding underlying assets through a special purpose vehicle (SPV).

Investment Manager: Qualified investment managers are required to have a minimum of 2 years of experience in real estate or real estate fund management. Alternatively, they may appoint key personnel with at least 5 years of experience each, along with a net worth threshold of INR 20 crore.

Investment Conditions: SM REIT schemes must acquire assets ranging between INR 50 crore and INR 500 crore, with a minimum of 95% invested in completed, revenue-generating properties. Investment in non-revenue-generating real estate is prohibited, with a provision allowing up to 5% investment in unencumbered liquid assets.

Initial Offering: A minimum of 200 unitholders (excluding the investment manager and its associates) is required, with a minimum investment per investor set at INR 10 lakh. An initial public offering with a minimum subscription of 25% of the total outstanding units is mandatory, with the draft offer document filed with SEBI through a merchant banker.

Leverage, Launch, and Lock-in: Both scheme and SPV levels can leverage through borrowings and issuance of listed non-convertible debentures (NCDs). Specific leverage limitations and credit rating requirements are established to manage risk. SM REITs are obligated to launch their initial scheme within 3 years of registration with SEBI, accompanied by defined lock-in periods for investment manager holdings, ranging from 1% to 15% contingent on the scheme’s leverage and tenure.

Distributions: The investment manager is responsible for ensuring that at least 95% of the net distributable cash flows from the SPV are channeled to the scheme, with 100% of the scheme’s net distributable cash flows further distributed to the unitholders on a quarterly basis.

Providing a Transition for Existing FOPs

Recognizing the presence of established FOPs, SEBI has provided a 6-month window for them to apply for registration as SM REITs. This transitional phase offers FOPs the opportunity to transition to a regulated structure and potentially expand their investor base, with relaxed criteria regarding asset size and minimum investor thresholds.

Looking Ahead: Potential and Growth Projections

The introduction of the SM REIT framework by SEBI has garnered positive feedback from industry stakeholders, anticipating significant growth in the real estate fractional ownership market. Key highlights from their perspective include:

Regulatory Framework Addressing Critical Aspects: SEBI’s regulations are commended for addressing crucial areas such as investor safeguards, defined holding periods, diversification mandates, and relatively accessible minimum investment thresholds.

Enhanced Liquidity for Developers: SM REITs provide developers with a new avenue to monetize smaller completed projects, potentially accelerating project cycles.

Expanded Investor Base: The framework enables retail and institutional investors to participate in the real estate market with a lower minimum investment compared to traditional REITs.

Opportunities for New Fund Managers: With manageable minimum fund sizes and holding requirements, the framework presents opportunities for new entrants in the fund management space.

Market Size and Growth Projections: Industry reports forecast a substantial increase in the market size, projecting it to reach $5 billion by 2030, attributed to enhanced transparency and investor protection.


The introduction of the SM REIT framework marks a significant milestone in addressing gaps within the real estate fractional ownership market. By addressing issues of transparency and exit opportunities previously hindered by unregulated FOPs, SM REITs pave the way for a structured, transparent, and dynamic real estate investment landscape in India. With the potential to create a new asset class and attract a broader investor base, SM REITs are poised to drive substantial growth in the years to come, fostering an environment of transparency, structure, and liquidity in real estate investments.

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