Sebi seeks regulating fractional ownership platforms
The Securities and exchange Board of India has come out with a consultation paper to regulate platforms offering fractional ownership of real estate assets. Such fractional ownership of real estate assets is proposed to be brought as MSM REITs under Sebi (Real Estate Investment Trusts) Regulations, 2014. The regulator has invited comments by May 27.
The previous two-three years have seen mushrooming of web based platforms offering fractional ownership of real estate assets. These platforms provide investors an option to invest in buildings and office spaces, including warehouses, shopping centres and conference centres. The minimum investment in these fractional ownership platforms (FOPs) ranges from Rs 10 lakh to Rs 25 lakh.
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The underlying real estate assets offered on FOPs are similar to the real estate or property defined under the REIT regulations. The proposals say that any person or entity (including FOPs) which facilitate or have facilitated fractional investment in real estate by any structure will have to register with Sebi for operating as MSM REIT.
Entities which do not meet the eligibility criteria or do not register within the given timelines shall be required to wind-up operations and cease to operate.
MSM REIT will be set up as a trust and have parties such as trustee, sponsor and investment manager.
Through FOPs, 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 the FOP. Such SPV purchases the real estate asset.
Some of the FOPs are operated by real estate agents or brokers (before the property is purchased) and as property managers thereafter. For the former, some FOPs may have registered themselves as real estate agents under the provisions of the state-level Real Estate (Regulation and Development) Act, 2016 (RERA) if any, as applicable.