Small and Medium Real Estate Investment Trusts: Regulatory Landscape
September 11, 2025
CAM Comment: Regulatory framework towards India’s real estate sector is evolving with rapid phase. SEBI’s proactive move to introduce comprehensive governing skeleton for fractional ownership platforms in the form of small and medium real estate investment trusts under the SEBI (Real Estate Investment Trusts) Regulations, 2014, have created robust net of investors protection, removed transparency gaps and exit liquidity issues. This step has standardized disclosure practices along with regulatory oversight. Further, this paradigm shift has democratized the real estate investment access for high-net-worth individuals while ensuring regulatory and governance norms.
Introduction
In recent years, web-based platforms offering fractional ownership of real estate assets have gained significant traction, providing investors with an alternative option to invest in buildings and office spaces such as warehouses, shopping centres, conference centres, etc., with minimum investment ranging from INR 10 lakh to INR 25 lakh. This rapid growth of fractional ownership platforms (“FOPs”) has highlighted the need to bridge the critical regulatory gaps within India’s real estate investment ecosystem.
Basis the concerns highlighted, the securities markets regulator, i.e., Securities and Exchange Board of India (“SEBI”) recognized the need to regulate the operations of FOPs, keeping in mind the core objective of investor protection, particularly for non-institutional investors. To address this, SEBI proposed bringing FOPs under the regulatory perimeter by introducing a separate chapter under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, as amended (“REIT Regulations”) and labelling them as small and medium real estate investment trusts (“SM REITs”).
This regulatory intervention aims to prescribe the governing norms for the unregulated nature of FOPs that raise multiple concerns regarding investor protection. These include lack of uniformity in disclosure standards; lack of transparency in valuation, professional team management, management fees, maintenance costs, redressal of investors issues and grievances; and most importantly the lack of liquidity for investors seeking to sell unlisted securities or their portion of the investment. The introduction of SM REITs under Chapter VIB of the REIT Regulations, through an amendment regulations in 2024, represents a paradigmatic shift toward the structured regulation of this emerging real estate asset class.
Regulatory Analysis
REIT Regulations, notified on September 26, 2014, provide a regulatory framework for Real Estate Investment Trusts in India. However, the relatively low number of REITs may be attributed to the requirement of a minimum asset size of INR 500 crore and a minimum offer size of INR 250 crore, which create barriers for smaller real estate investments.
The SM REIT framework allows money from multiple investors to be pooled under one or more schemes. The size of the asset proposed to be acquired in a SM REIT scheme must at least be between INR 50 crore and INR 500 crore, thus creating a distinct regulatory space between unregulated FOPs and traditional REITs.
The framework establishes comprehensive investor protection mechanisms. Investment managers must have a net worth of not less than INR 20 crore (which includes minimum liquid net worth of INR 10 crore), ensuring financial stability. The minimum price of each unit of the SM REIT scheme shall be INR 10 lakh, maintaining accessibility while ensuring serious investment commitment. The SM REIT scheme shall invest at least 95 per cent of the asset value for each of its schemes in completed and revenue-generating properties, prioritising income stability.
The REIT Regulations prescribe rights and responsibilities of the investment manager, trustee, valuer, and auditor to ensure effective and efficient governance framework, with a vision to protect the interests of the investors.
SM REITs are subject to periodic compliances and disclosures requirements (including but not limited to financial disclosures, secretarial compliances, annual, half yearly, quarterly reporting, etc.), to ensure transparency of the platform. The investment managers must also ensure (i) SPVs distribute at least 95 per cent of net distributable cash flows (“NDCF”) to scheme and (ii) schemes distribute 100 per cent NDCF to unitholders, ensuring regular income distribution to investors.Unlike unregulated FOPs, SM REITs provide liquidity through mandatory listing requirements, addressing the critical issue of exit options for investors that plagued the fractional ownership space.
Conclusion
The SM REIT regulatory framework represents proactive action towards market evolution, balancing accessibility with increased retail investor participation, while embedding a robust governance framework for investor protection. Widening the net of REIT Regulations and other regulatory compliances to cover FOPs is expected to address concerns and provide impetus for market growth. Migration to the REIT structure could potentially unlock tax benefits available to SEBI-registered REITs.
This regulatory step has created a structured pathway for small real estate investments while maintaining robust governance standards. The framework’s success will depend on effective implementation and market adoption. Key considerations for stakeholders include (i) the timeline for the migration of existing FOPs; (ii) practical implications of the minimum value of one unit as INR 10 lakh; (iii) upper limit of INR 500 crore for each scheme of the SM REIT; and (iv) listing compliances by investment manager for each scheme of the SM REIT.The SM REIT framework ultimately democratises access to institutional-quality and grade “A” real estate investments with high assurance of regulatory oversight, potentially transforming India’s real estate investment landscape for non-institutional investors seeking alternative and diversified, professionally managed real estate investments.