The Securities and Exchange Board of India (SEBI) is proposing new rules to improve the business environment for Small and Medium Real Estate Investment Trusts (SM REITs). Introduced in March 2024, SM REITs aim to attract smaller investors with lower asset requirements. SEBI's initiative includes standardising disclosures and simplifying the public issue process, enhancing transparency through a two-part disclosure structure: Key Information of the Trust (KIT) and Key Information of the Scheme (KIS). Additionally, SEBI proposes capping general purpose allocations at 10% of raised funds. Public feedback on these reforms is invited until November 13, aiming to bolster investor confidence in India's real estate market.
The Securities and Exchange Board of India (SEBI) is taking measures to enhance the business environment for Small and Medium Real Estate Investment Trusts (SM REITs) by proposing new rules aimed at standardising disclosures and simplifying the public issue process. This initiative, announced on Wednesday, seeks to make it easier for smaller real estate ventures to operate in India.
SM REITs were introduced in March 2024 to attract investments in the real estate sector, especially from smaller investors. These trusts allow investments in real estate without requiring large capital outlays. Unlike traditional REITs, which require a minimum asset value of INR 500 crore, SM REITs operate with a minimum asset size of INR 50 crore. These trusts are expected to invest about 95% of their assets in completed properties that generate income and distribute 95% of their net earnings to investors on a quarterly basis.
In its recent consultation paper, SEBI proposed a two-part structure for disclosures in the scheme offer documents. The first part, called the Key Information of the Trust (KIT), will include essential details about the SM REIT, such as information about its management and governance. The second part, termed Key Information of the Scheme (KIS), will provide specific details about individual schemes and their assets. This two-tiered approach is designed to improve transparency and make it easier for investors to understand the offerings.
One significant change involves the handling of disclosures. For the first scheme, both the KIT and KIS will need to be submitted together. For any subsequent schemes, only the new KIS will be required, while the KIT will simply be updated. SEBI also indicated that any significant changes in the KIT must be disclosed promptly through an addendum on the SM REIT's website and reported to both SEBI and stock exchanges within a week.
To ensure ongoing compliance, the investment manager of the SM REIT must update the KIT every six months and post the revised version online within a month after the end of the half-year period. This level of transparency is expected to foster greater trust among investors and streamline operations.
Further reforms proposed by SEBI address the public issue process for SM REITs. The regulator suggests extending existing REIT guidelines to these smaller trusts with some modifications. For instance, it is proposed that SM REITs can only issue units through public offers. Additionally, if a public offer is not made within one year after SEBI's observations, the SM REIT must submit updated KIT and KIS documents.
SEBI also plans to cap the funds allocated for general purposes at 10% of the amount raised in any public offering. This move aims to ensure that most of the raised capital is directed toward investment in properties, thus aligning with the core purpose of these vehicles. In case an offer is oversubscribed, units will be allocated either proportionately or via a lottery system for the minimum lot size.
This push for regulatory reform comes at a time when the real estate market is gaining momentum in India, fueled by rising demand and increasing participation from various investor demographics. According to analysts, these proposed changes could significantly boost investor confidence, particularly among smaller investors who have been hesitant to enter the real estate market due to previous complexities in investment structures.
SEBI has opened the floor for public feedback on these proposals, with comments being welcomed until November 13. The responses provided during this consultation phase will play a crucial role in shaping the final regulations. These reforms are expected to create a more favourable environment for SM REITs, promoting investment and contributing to the growth of India's real estate sector.
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