Micro REIT [UPSC Notes]

There is a proposal to reduce investment in the REITs from ₹500 crore ticket size of regular REITs to a minimum asset size of ₹25 crore by the SEBI. In this context, what are micro-REITs or MSM REITs? What are the advantages they offer? This article explains the concept of miro-REITs and provides details about the topic for the IAS exam Indian economy segment.

What are Micro-REITs?

REIT Regulations: 

• SEBI (REIT) Regulations, 2014, provide a regulatory framework for the regulation of Real Estate Investment Trusts (REIT). 
• REIT Regulations provide an avenue for investors to invest in real estate assets which otherwise they would not have been able to take exposure.

Changes proposed: 

• SEBI has floated a consultation paper for regulating all web-based platforms offering fractional ownership of real estate assets to protect small investors.
  • Such 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 Ownership Platforms (FOPs) allow investors to own a certain percentage or fractional share in the real estate asset through the securities issued by the SPVs.
• SEBI envisages the creation of ‘Medium, Small and Micro’, or MSM REITS which will enable you to invest in such properties with a minimum investment amount of ₹10 lakh.
  • The sponsor and investment manager should have a net worth of at least Rs 20 crore and Rs 10 crore, respectively.
• If investors decide 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.
  • 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.

Advantages of the recent changes: 

• It will protect small investors against any fraudulent activities on the part of the major players. 
• It will attract more investment in the field of real estate and thus provide a thrust to economic growth. 
• It will bring uniformity in the law across the real sector in the country. 
• It will reduce ambiguousness in the manner of completion of the real estate and of issuance of the securities & may lead to independent review oversight. 

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