The intention to bring in rules for investment platforms offering fractional ownership of real estate assets comes in the wake of growing demand for such products in recent times. Sebi has observed web-based platforms offering such products have mushroomed in the past 2-3 years. These platforms provide investors an option to bet on properties such as buildings and office spaces including shopping and conference centres.
Fractional ownership of real estate assets would be introduced as MSM REITs (micro, small and medium real estate investment trusts), the person said. Fractional ownership platforms (FOPs) provide an opportunity to a group of people to pool in money and jointly purchase real estate. They facilitate investment in primarily pre-leased real estate, which earn the investors a rental yield as well as permits participating in potential rise in value of such real estate. The returns are distributed to the investors after the management fees and other charges.
The minimum investment could be between ₹10 lakh to 25 lakh.
“Fractional ownership in rental income generating assets is emerging as a very attractive investment opportunity for retail investors. The annuity and capital appreciation of such assets make them a worthy addition to a healthy investment portfolio,” said Anuj Puri, chairman, Anarock Property Consultants.
“Most high-quality assets have high price tags; this is where the fractional ownership of such assets can play a beneficial role. Investors can own a right to this property along with other investors.”
Some of the popular domestic Fractional Ownership Platforms are Prop Share, Hbits, Strataprop, Asset Monk and Myre Capital. The largest FOP has assets under management worth ₹960 crore, Sebi said in a discussion paper. Internationally, such FOPs have been in existence since 2015. US-based Fundrise, which handles over 3.8 lakh investors, manages assets worth $7 billion.Sebi noticed that unlisted securities, which connotes the fractional investment in a specific real estate, are issued to the investors. For exiting these investments, the investor is dependent on the platform for identifying potential purchasers and in effecting transfers. The regulator said such dependency on the Fractional Ownership Platforms without assurance of exit, due valuations, liquidity or transparency is unfavorable for the investors and is not in their long term interests.
“Such regulation ensures that checks and balances are in place and investor interests are protected. It also discourages fly-by-night operators, and expands the industry by improving the availability of capital for quality assets,” Puri of Anarock said.
Delisting
The regulator’s board will also discuss the proposal on allowing companies to delist with a fixed price. Currently, companies looking to delist follow the reverse book building mechanism, in which public shareholders offer the prices at which they are willing to tender their shares for buyback and subsequent delisting. The regulator felt this process allowed operators to corner shares once the delisting announcement is made and make it difficult for companies to go private
The fixed price option would only be for those companies that have their shares frequently traded.
