MUMBAI: The Securities and Exchange Board of India (Sebi) is poised to discuss proposals concerning the regulation of investment platforms offering fractional ownership of real estate assets and potential changes to delisting rules during its meeting on November 25, according to sources with direct knowledge of the matter. The capital markets regulator is considering allowing companies to go private at a fixed price.
The move to establish rules for investment platforms providing fractional ownership of real estate assets is prompted by the increasing demand for such products in recent times. Sebi has noted a proliferation of web-based platforms offering these products over the past 2-3 years, allowing investors to bet on properties like buildings, office spaces, shopping centers, and conference facilities.
The introduction of fractional ownership of real estate assets is envisioned as MSM REITs (micro, small, and medium real estate investment trusts), with fractional ownership platforms (FOPs) enabling a group of individuals to pool funds and collectively acquire real estate. These platforms facilitate investment in pre-leased real estate, providing investors with rental yield and the opportunity to participate in potential value appreciation. Returns are distributed to investors after deducting management fees and other charges, with a minimum investment expected to range 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,” remarked Anuj Puri, Chairman of Anarock Property Consultants.
Popular domestic Fractional Ownership Platforms include Prop Share, Hbits, Strataprop, Asset Monk, and Myre Capital. The largest FOP, managing assets worth ₹960 crore, was highlighted by Sebi in a discussion paper. Internationally, such FOPs have existed since 2015, with US-based Fundrise overseeing assets worth $7 billion for over 3.8 lakh investors.
Sebi has observed the issuance of unlisted securities, representing a fractional investment in specific real estate, to investors. The regulator is concerned about the dependency on Fractional Ownership Platforms for exit options, valuations, liquidity, and transparency, deeming it unfavorable for investors’ 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,” commented Puri of Anarock
The Sebi board will also delve into a proposal to allow companies to delist with a fixed price. Currently, companies seeking to delist follow the reverse book-building mechanism, where public shareholders offer prices for buyback and delisting. Sebi believes this process allows operators to corner shares, making it difficult for companies to go private. The fixed price option would apply only to companies with frequently traded shares.
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