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Extending the scope of REIT regulations, SEBI said that it will soon regulate fractional real estate companies or Fractional Ownership Platforms (FOPs) like strataprop, prop share and Asset Monk.
In a consultation paper, SEBI said, “Given the increasing value of investments with such FOPs, as well as rising number of investors it has become necessary to consider whether it is an appropriate juncture to require registration and regulate these FOPs in order to bring about, inter-alia, regulatory oversight, common uniform standard disclosure practices, ensuring liquidity by way of listing or similar such measure, investor redressal mechanism, etc. to safeguard the interest of investors.”
Here are some key proposals:
- MSM REIT should set up a trust and have parties such as trustee, sponsor and investment manager
- No person should act as MSM REIT if it is not registered with SEBI
- The sponsor should have at least 5 years of experience in real estate industry either as a developer or a fund manager
- Sponsor will have to hold at least 15% of their scheme for a period of three years
- Sponsor should have net worth of Rs.20 crore including Rs.10 in liquid assets
- The investment management of MSM REIT should be distinct entity whose primary business is to manage assets and investments of MSM REIT. The investment management should have net worth of Rs.10 crore in liquid assets
- The minimum investment amount in MSM REIT should be Rs.10 lakh
- The scheme will have to raise Rs.25 crore from at least 20 investors. The fund size should not exceed Rs.499 crore
- At least, 90% of the total corpus should be invested in completed and rent generating properties at all times. Also, 5% of the total corpus has to deployed in liquid cash
- 100% of the net distribution cash flows has to be distributed among investors
- Standard KYC has to be completed before onboarding investors
