SM-REIT approved commercial spaces offers Rs.67,000 to Rs.71,000 crore profit

The report also added that,as of December 2023, the combined Grade A office space amounted to 9800 lakh sq ft, while Grade B office space totaled 1150 lakh sq ft in the top seven cities. With a cap rate ranging from 8-8.5%, SM REIT-ready office spaces present monetization prospects of Rs. 67,000 to Rs 71,000 crore in the top seven cities. 

The estimated size of small and medium REIT-ready office spaces is approximately 520 lakh sq ft to 530 lakh sq ft, highlighting a promising potential for SM REIT listings in the commercial office sector.

SEBI has made it clear that it will enforce regulations on fractional ownership platforms (FOPs) that provide real estate assets through small and medium REITs (SM REIT). Both existing and new FOPs are required to register with SEBI. These platforms enable investors to engage in real estate ownership by purchasing fractional shares, with a minimum investment amount ranging from Rs. 10-25 lakh.

SEBI has implemented SM REIT regulations to provide regulatory oversight in response to the rising value of investments associated with FOPs and the expanding investor base.

SM REITs offer a chance for small-scale developers of Grade A and a majority of Grade B office spaces to capitalize on their investments. Additionally, the formalization of fractional ownership platforms is anticipated to result in greater acceptance within the market. Currently, it is approximated that the assets under management (AUMs) for different FOPs amount to Rs. 5,000 crore.
ICRA report also mentioned, nevertheless, the minimum unitholding threshold for SM REITs may serve as a hindrance in terms of scalability.

ICRA maintains positive outlook on India's commercial office sector. Demand from GCCs, non-IT MNCs, and domestic companies remains strong. Net absorption in top six cities to increase by 4-5% in FY2025, after a decline in FY2024. Despite increased supply, vacancy rates expected to remain around 16.0-16.2%.

Senior Vice-President & Group Head - Corporate Ratings, ICRA,Rajeshwar Burla explained,“Small and Medium REITs will provide an opportunity for small Grade A and most of the Grade B office developers to monetise their investments. Also, fractional ownership platforms (FOPs) are expected to be formalized, leading to wider market acceptance.”

During last November, the Sebi board cleared the amendments to the REITs Regulations, 2014, in order to create a regulatory framework for the facilitation of SM REITs, with an asset value of at least Rs.50 crore vis-a-vis minimum asset value of Rs.500 crore for existing REITs.

According to the notification, the SM-REIT scheme mandates a minimum price of Rs.10 lakh for each unit, or any other amount specified by Sebi periodically. The proposed asset size for acquisition in an SM-REIT scheme ranges from Rs.50 crore to less than Rs.500 crore.