SM REITs to Boost CRE Democratisation for Retail Investors

Shesh Rao Paplikar(Founder & CEO of BHIVE Group) - June 15, 2024 - - 0 |
SM REITs to Boost CRE Democratisation for Retail Investors

After the listing of the world’s first Real Estate Investment Trust (REIT) in 1965 at the New York Stock Exchange, it took 54 years to reach its fruition in India with the listing of the first major REIT in 2019. As of today, there are a total of three REITs in India with a portfolio of 87 million square feet with a cumulative asset under management (AMU) of Rs. 4.5 lakh crore. However, the larger story here has been the democratisation of commercial real estate in India by enabling retail investors to own a piece of the largest segment of Indian realty in an affordable manner while posting great returns on investment.

This trend got a shot in the arm with the recent notification by the Securities and Exchange Board of India (Sebi), allowing for the creation of Small and Medium Real Estate Investment Trusts, or SM REITs through an amendment to the REIT Regulations 2014. This means retail investors can own a piece of quality rental income generating commercial assets in an investment as less as Rs 10 lakh, thereby significantly lowering the entry barrier.

While the vision and investment model of SM REITs are quite similar to the initial REITs which deal in Grade A commercial office spaces, SM REITs maintain diversified portfolios, enabling retail investors to spread risk across different realty types- commercial, residential and retail within the real estate landscape.
This development comes at an opportune time as there’s been a significant surge in investments by retail investors in non-traditional investment avenues such as stocks, mutual funds, bonds and REITs. Further lowering the entry barrier for retail investors will lead to fresh inflow of funds, democratisation of the Indian real estate market and bring higher returns than traditional investment tools such as fixed deposits and gold.

This assumes significance as REITs offer a higher return on investment as against the traditional investment methods and therefore, it becomes important to actively invest in inflation proof assets such as REITs which ensures one’s financial security.

Furthermore, with smaller cities registering rapid growth and companies increasingly tapping into their consumer base, they are bound to witness a mushrooming of quality real estate, thereby expanding the addressable market for REITs in the coming decade.

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