Context:
Securities and Exchange Board of India (Sebi) has issued a public warning to investors about Strata, a commercial real estate investment platform, after it voluntarily surrendered its Small and Medium Real Estate Investment Trust (SM Reit) licence.
SEBI’s Guidelines on Small and Medium Real Estate Investment Trusts (SM REITs)
The Securities and Exchange Board of India (SEBI) has introduced new regulations to facilitate the creation of Small and Medium Real Estate Investment Trusts (SM REITs), providing greater access to real estate investments for smaller investors.
What is an SM REIT?
- A Small and Medium REIT (SMREIT) is a type of Real Estate Investment Trust designed to accommodate smaller real estate projects.
- It lowers the entry threshold from ₹500 crore (for regular REITs) to ₹50 crore, thereby democratizing real estate investments.
Key Features of SM REITs
- Minimum Asset Value
- Must have a minimum real estate asset value of ₹50 crore.
- Fund Pooling Mechanism
- Can raise a minimum of ₹50 crore through at least 200 investors by issuing investment units.
- Fund Utilization
- Funds are used to acquire and manage real estate assets and generate income for investors.
- Ownership via SPVs
- Each SM REIT scheme will operate through dedicated Special Purpose Vehicles (SPVs) for asset ownership.
- Investment Manager Requirements:
- Must have a net worth of at least ₹20 crore
- Must appoint a separate trustee to ensure oversight
- Required to maintain a dedicated website disclosing all SM REIT schemes for transparency
Significance of SM REITs
- Wider Access: Enables participation in smaller, regional real estate projects.
- Diversification: SM REITs can create separate schemes for:
- Residential real estate
- Commercial properties
- Industrial infrastructure
- Mixed-use developments
- Transparency: Enhanced investor visibility through mandatory online disclosures
Infrastructure Investment Trust (InvIT)
- Definition: An InvIT is a collective investment vehicle similar to mutual funds that allows both retail and institutional investors to invest in infrastructure projects.
- Regulated by: SEBI
Key Components of an InvIT
- Trustee
- Oversees compliance and performance of the trust
- Sponsor(s)
- Promoters or entities responsible for establishing the InvIT
- Investment Manager
- Manages assets and operations of the InvIT
- Project Manager
- Handles the execution and management of infrastructure projects
