Unlocking Investment Potential: A deep dive into REITs and Fractional Ownership platforms in India

financialexpress.com:

As of September 2014, India approved creation of real estate investment trusts in the country. Real Estate Investment Trusts (REITs) can invest in real estate assets located in India, either directly or through holding companies and/ or special purpose vehicles (SPVs).

As of March 31, 2023, 5 REITs are registered with SEBI, of which three REITs have issued units which are listed on the recognized stock exchange. These are Embassy, Mindspace and Brookfield. They invest in big companies who take up office space and pay rent.

Although there is immense potential in real estate investment, one of the reasons for lesser number of REITs may be attributed to the requirement of minimum asset size of INR 500 crore and minimum offer size of INR 250 crore as envisaged in the REIT Regulations.

In the last few years, India has witnessed an emergence of web-based platforms that provide investors an opportunity to invest in real estate assets, in exchange for fractional ownership in these real estate assets. Usually, the investors are required to invest on these platforms, popularly known as, FOPs. The strategy generally adopted by these FOPs is that the investors subscribe to the securities of a SPV established by the FOPs, which in turn purchases the actual real estate asset. Through this approach, the cost of acquisition of any identified real estate is split among several investors. It has been seen that these FOPs do not register themselves as real estate agents under RERA, even though they act as real estate agents or property managers.

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In May 2023, SEBI had floated a consultation paper for regulating the FOPs. SEBI has suggested that there is a need to