Insights by: Sumit Kochar & Jaydeep Saha
On March 8, 2024, the Securities and Exchange Board of India (SEBI) made amendments to SEBI (Real Estate Investment Trusts) Regulations 2024, which introduced Small and Medium Real Estate Investment Trusts (SM REITs). Salient features of the key provisions of these amendments include:
- A fresh chapter, Chapter VIB, is introduced specifically for Small and Medium REITs (SM REITs). The regulations redefine the concept of REITs, rendering it accessible to a wider investor base. This regulatory reform enables SM REITs to raise funds commencing from ₹50 crores by issuing units to a minimum of 200 investors, thereby democratizing real estate investment and enabling fractional ownership of lucrative properties across the nation.
- The regulations delineate the registration procedure for SM REITs, mandating an application by the investment manager on behalf of the Trust, accompanied by a non-refundable application fee.
- Criteria encompass a minimum net worth for investment managers, experience prerequisites, and independence criteria for directors. The investment manager must possess a net worth of at least twenty (20) crores rupees, with a significant portion constituting positive liquid net worth.
- The issuance of a certificate to SM REITs is contingent upon adherence to prescribed conditions, including compliance with the Act and regulations, adherence to migration plans, and continuous compliance with the specified code of conduct.
- Provisions for the migration of existing entities to SM REITs are outlined, delineating the application process and time frames for migration.
- REITs must fulfill specific eligibility criteria to initiate an initial offer, encompassing minimum asset size and a requisite number of unitholders. A merchant banker must be appointed to oversee the issuance process.
- Investment manager is mandated to submit a draft scheme offer document to the Board, containing disclosures as stipulated in Schedule III. The document must be made accessible to the public for comments for a specified duration.
- Conditions pertaining to Special Purpose Vehicle (SPV) ownership, types of assets eligible for investment, and restrictions on lending are specified to ensure transparency and stability in SM REIT investments.
SM REITs, are set to enhance transparency, eligibility criteria, and the overall regulatory framework. These changes are poised to reshape the landscape of real estate investments in India, offering investors and stakeholders a more organized and secure environment. It is wise to stay informed as these regulations unfold and impact the Indian real estate market. The introduction of regulations for SM REITs brings a fresh optimism for the growth and diversification of the real estate investment market in India.
