SMREITs for Your Real Estate Investments

The Securities and Exchange Board of India (SEBI) has established a comprehensive framework for Small and Medium Real Estate Investment Trusts (SMREITs) to regulate the previously informal fractional ownership market and ensure investor protection. These regulations, introduced in 2024, outline specific requirements for both the SM REIT structure and the investment manager.

Key Regulatory Requirements for SMREITs

Here are some of the most important regulations for SM REITs in India:

Valuation and Disclosure: SEBI regulations mandate regular, comprehensive valuations of properties by an independent valuer. The SM REIT must also provide mandatory disclosures in the offer document and through periodic reports to ensure transparency for investors.
Structure: An SM REIT must be set up as a trust and registered with SEBI. It can launch multiple distinct schemes to acquire properties. Each scheme’s assets are held through a separate Special Purpose Vehicle (SPV), which is a wholly-owned subsidiary of the SM REIT.
Asset Size and Quality: Each scheme must have a minimum asset value of ₹50 crore and a maximum of ₹500 crore. A minimum of 95% of the assets must be in completed and revenue-generating properties, ensuring a stable income stream.
Investment and Listing: The minimum investment from a single investor is ₹10 lakh. The units must be in dematerialized form and compulsorily listed on a recognized stock exchange for liquidity. Each scheme needs at least 200 investors (excluding the investment manager and associates).
Investment Manager (IM) Requirements: The IM must have a minimum net worth of ₹20 crore, with at least ₹10 crore in liquid assets. They also need a minimum of two years of real estate experience or two key personnel with five years of experience. At least half of the IM’s board directors must be independent. The IM is also required to make a co-investment of at least 5% in each scheme they manage, with a lock-in period.
Leverage: An SM REIT scheme’s borrowings and deferred payments must not exceed 49% of its asset value. If leverage surpasses 25%, the scheme needs a credit rating from a SEBI-registered agency.
Distributions: SM REITs are required to distribute at least 95% of their net distributable cash flows from the SPV to the unitholders.