Will SM Reits be safe for India’s retail investors?

livemint.com:

MUMBAI : Gazing down at Bengaluru from the top of the iconic Cafe Coffee Day building, known as the Square, one can sense the emerging power in India’s real estate market. Owned by Strata, the country's largest fractional real estate platform, the building symbolizes a major shift in property investments. Propelled by the concept of fractional ownership, Strata has rapidly grown to a formidable ₹1,800 crore in assets under management in just four years.

This growth reflects a significant change in how property investments are perceived and pursued in one of the world’s fastest-growing economies. “This is the office that V.G. Siddhartha sat in," I am told by Strata founder Sudarshan Lodha.

Much like Siddhartha, who transformed the nation’s coffee-drinking habits with Cafe Coffee Day, Lodha is reshaping real estate investment in India. Launched by the Chennai-born lawyer just before the pandemic in 2020, Strata unexpectedly flourished as India’s upper middle class, confined at home, attended his webinars extensively. The model is straightforward: fractional real estate platforms pool funds from customers into special purpose vehicles—usually private limited companies—and invest in commercial real estate.

These platforms typically require a minimum investment of ₹25 lakh, offering investors the benefits of rental income and potential property appreciation. However, from a taxation standpoint, the model is inefficient. The special purpose vehicle (SPV) pays tax on the rental income it receives.