KPMG in India and CREDAI has released a thought leadership report titled “The New Frontier in Real Estate Investment: Unlocking the Potential through Fractional Ownership”. This comprehensive analysis sheds light on the transformative potential of Small and Medium Real Estate Investment Trusts (SM REITs) in reshaping the investment landscape for real estate in India. This report explores the emerging trends in fractional ownership where this innovative model allows multiple investors to own high-value Grade A properties with smaller investments, democratizing access to real estate.
In a groundbreaking move, the Securities and Exchange Board of India (SEBI) has introduced amended regulations for SM REITs, opening the door for retail investors to participate in high-value real estate assets with a minimum investment of INR10 lakhs. This initiative enables a diverse group of investors to collectively own units of premium properties, providing access to real estate assets.
The rise of SM REITs is expected to create a ripple effect across the real estate industry, by offering developers an efficient exit strategy and enabling reinvestment of capital into new ventures, fostering sustained growth in the sector, which is one of the largest employers in the country. As per the Fractional Ownership Platforms (FoPs), the increased liquidity and flexibility offered by SM REITs also enhance the attractiveness of real estate as an investment class, potentially leading to healthier returns, depending on the asset class, locations, tenant profile, size of the project.
While the potential of SM REITs is immense, the report also highlights the inherent challenges and risks associated with fractional ownership. Liquidity concerns (relative), somewhat less favorable tax regime compared to regular equity investments, and the need for consensus among co-owners are critical factors that necessitate careful consideration and strategic management. SEBI’s regulatory framework, which mandates a minimum 5/15 percent units in the scheme of SM REIT to be held by FOPs/IM (depending on leverage), aims to safeguard investor interests and bolster confidence.
Driven by the rising demand for residential (rental) and commercial real estate, the anticipated surge in demand is expected to unlock opportunities for a broader spectrum of investors, driving growth, and fostering innovation in the real estate sector.
“India’s real estate sector is at the brink of a revolutionary transformation, driven by urbanization, economic growth, and technological advancements. Fractional ownership is redefining investment paradigms, enabling retail investors to partake in high-value properties with a minimum investment of INR10 Lakhs. While this model offers significant potential, navigating its inherent challenges requires thoughtful deliberation and robust regulatory oversight. Moving forward, the sector’s resilience and adaptability will hinge on innovative solutions that navigate these complexities while harnessing the sector’s growth potential. The synergy between innovative investment platforms and regulatory frameworks will be more pivotal than ever in shaping a dynamic and resilient real estate market.” – Chintan Patel, Partner – Deal Advisory & Head – Building, Construction and Real Estate, KPMG in India.
“The Indian office market has consistently showcased significant resilience and delivered strong performance. This surge in demand is closely tied to the rising popularity of co-working spaces and fractional ownership opportunities in India. With SEBI overseeing regulatory matters, it facilitates dual objectives: strengthening investor confidence and enhancing transparency, thereby bolstering the security and liquidity of fractional ownership investments. The fractional ownership model offers a redefinition of traditional property ownership, with healthy returns, easy monitoring and diversification benefits – all contributing to its increasing popularity.” – Boman R Irani, President – CREDAI