Sebi proposes norms to regulate fractional ownership platforms offering real estate assets

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NEW DELHI : The capital markets regulator Securities and Exchange Board of India (Sebi) has floated a consultation paper for regulating web-based fractional ownership platforms (FOPs) offering fractional ownership of real estate assets to protect small investors. The proposed framework would help develop the real estate market, provide investor protection measures and lead to an orderly development of this sector and the market, the consultation paper released on Friday said. The fractional ownership of real estate assets is proposed to be brought as Micro, Small and Medium REITs under Sebi’s Real Estate Investment Trusts rules.

Fractional investment of real estate through FOPs is an investing strategy in which the cost of acquisition of real estate is split among several investors, who invest in securities issued by a special purpose vehicle (SPV) established by an FOP. Such SPVs purchase real estate assets. Some FOPs are operated by real estate agents or brokers (before the property is purchased) and as property managers thereafter.

“While an investor decides to invest in such real estate, the lack of standard, uniform selling practices and lack of independent valuation, or diligence of information or materials provided to potential investors could result in investors falling prey to misspelling,” Sebi said.

The regulator has proposed to bring FOPs under regulatory ambit by introducing a chapter under REIT Regulations and labelling these as MSM REITs.

MSM REIT should have parties like a trustee, sponsor and investment manager with each such person being a separate and distinct entity. The sponsor and investment manager should have a net worth of at least Rs20 crore and Rs10 crore, respectively.

Sebi said that there has been a mushrooming of web-based platforms offering fractional ownership of real estate assets in the past 2-3 years. These platforms provide investors with an option to invest in buildings and office spaces, including warehouses, shopping centres, conference centres etc.

The minimum investment on these FOPs ranges from Rs10 lakh to Rs25 lakh.

The underlying real estate assets offered on FOPs are similar to the real estate or property defined under the REIT Regulation, Sebi said in its consultation paper. It has been proposed that any person or entity (including FOPs) which facilitate or has facilitated fractional investment in real estate by any structure whatsoever would be required to register with Sebi for operating as MSM REIT. MSM REIT should be set up as a trust with the ability to establish separate and distinct scheme/s for owning real estate assets through wholly-owned special purpose vehicles constituted as a company.

The Sebi has sought comments on the proposals by 27 May.

(With inputs from agencies)

 

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