Fractional real estate platform hBits plans to register with SEBI as India's first Small and Medium Real Estate Investment Trust (SM REIT) within three weeks. Seeing an opportunity in the new SM REIT regulations notified in March 2024, hBits will look to capitalize on being the first registered entity. They currently manage INR 365 crore in assets and aim to reach INR 1,000 crore this fiscal year. As an SM REIT, hBits will raise funds for new assets on an individual basis, treating each new listing as a mini-IPO for investors to choose from. The SM REIT structure makes commercial real estate investing highly accessible for retail participants by reducing the ticket size to INR 10 lakh.
Fractional real estate platform hBits plans to be the first company to register with SEBI as a Small and Medium Real Estate Investment Trust (SM REIT) within the next three weeks.
SEBI notified regulations for SM REITs in March 2022, paving the way for fractional ownership platforms to operate under the regulatory framework. Seeing this opportunity, hBits founder Shiv Parekh said they've been working aggressively to apply as soon as possible so as to be the first to register.
SM REITs operate differently than larger REITs - they raise funds asset-by-asset after registration. Each new asset is listed separately, allowing investors to choose which to subscribe to like mutual fund schemes. Parekh explained the process stating that it will be just one asset at the time of launch and then they'll keep adding new assets and schemes. It is like a mini-IPO process for each asset.
The first asset is expected to be worth INR 75-100 crore, with three potential assets shortlisted in Mumbai, Pune and Bengaluru. Parekh said the company aims to launch one asset every month.
Approval is required for each new asset listing, and hBits is in discussions with regulators and exchanges to streamline this process. The SM REIT regulations have increased investor interest in such platforms by establishing legitimacy.
hBits currently has INR 365 crore worth assets under management and targets INR 1,000 crore during the fiscal year.
In April 2024, hBits acquired a 44,328 sq ft campus in CyberCity Magarpatta, in Pune, with an investment opportunity of INR 55 crore. In February it acquired a 24,816 sq ft asset in Bengaluru of a similar value.
The Indian real estate market has seen significant price appreciation in both the residential and commercial segments over the last three years. However, direct investment in residential or commercial real estate has been out of reach for many middle-class investors due to the high entry thresholds.
The SM REIT structure makes commercial real estate investing highly accessible for retail participants. This will play a key role in deepening India's real estate markets and channeling more institutional capital into continued industry growth.
With a minimum investment size of just INR 10 lakh, SM REITs allow widespread participation from individuals. Investors can buy and sell units through stock exchanges, holding them in demat accounts like equity. This makes real estate investing highly convenient and accessible for millions of Indians. This widespread participation will be instrumental in the continued growth of the industry.
Also, unlike other investment products, real estate investments provide ownership of tangible property assets. All REIT platforms conduct thorough due diligence on underlying properties, allowing investors to understand the quality and risks.
Similarly, commercial properties within REIT portfolios are typically pre-leased to reputed tenants, reducing rental default risk. Rental yields of 8-9% from these assets provide steady monthly income to investors. In addition to rental income, property values within REITs are expected to appreciate substantially as India's real estate market size grows to USD 1 trillion by 2030 at an 18.7% CAGR.
Being registered as India's first SM REIT provides hBits with a significant competitive advantage. It gives the platform regulatory legitimacy to scale its operations and attract more investor interest. Registration of hBits as an SM REIT marks the starting point for fractional real estate to usher in a new wave of mainstream real estate investment across the country.
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