Updated December 3rd, 2023 at 14:08 IST
Wondering about owning a fraction of holiday home? SEBI's recent approvals unveil new possibilities
SEBI's approval for smaller REITs and fractional investments aims to streamline ownership of income-generating real estate, particularly luxury second homes.
The Securities and Exchange Board of India (SEBI) has recently greenlit the creation of smaller Real Estate Investment Trusts (REITs) of Rs 50 crore, along with guidelines for fractional ownership. This move is expected to streamline second home transactions and provide clarity and regulation for fractional ownership.
SEBI's approval for smaller REITs and fractional investments is anticipated to facilitate the fractional ownership of income-generating real estate assets, especially upscale second homes nationwide. The guidelines are set to expedite the closure of second home deals and establish a regulatory framework for fractional ownership, say experts.
Fractional future unveiled
Fractional ownership platforms enable property costs to be divided amongst multiple investors, each owning shares issued by a special purpose vehicle (SPV). For instance, a Rs 10 crore villa in Goa can be shared amongst ten owners, each contributing Rs 1 crore. Co-owners receive a share of the property and designated usage time. Stamp duty and registration costs are typically included, with ongoing maintenance expenses shared amongst investors.
Gunjan Goel, Director, Goel Ganga Developments emphasises that SEBI's guidelines are pivotal for legitimising the sector, building investor confidence, and addressing SPV securities issuances' complexity. These rules are expected to benefit retail investors unfamiliar with such structures and promote the growth of this ownership model.
LC Mittal Director, Motia Group, sees SEBI's decision as a step to broaden real estate as a financial investment. He particularly applauds the potential for fractional ownership of income-generating real estate assets, including luxurious second homes.
Investors find this model attractive as they acquire a fractional share of a holiday home asset, optimising usage for all co-owners. With second homes often remaining vacant for a significant part of the year, fractional ownership proves viable. Shared responsibility for maintenance amongst multiple members further reduces the investment cost to a fraction of the property's total value.
The formalisation of these guidelines is expected to streamline second home deals, reducing the time taken for transactions. The regulatory clarity provided by SEBI oversight is likely to instil confidence and reduce risks for investors. The move is seen as a win-win for both investors and the real estate sector.
Published December 3rd, 2023 at 14:08 IST