India is projected to have a potential Small and Medium Real Estate Investment Trusts (SM REITs) market value exceeding $ 60 billion by 2026, with over 350 mn sq ft of ready commercial office stock. Among the top seven cities, Mumbai leads the potential SM REIT-ready completed stock with 75 mn sq ft as of June 2024.
According to CBRE estimates, the potential market for SM REITs in India encompasses over 300 million square feet of completed commercial office space, with an additional 50 mn sq ft expected to be completed by 2026.
This growth reflects increasing interest in SM REITs, which are anticipated to have a significant impact on India’s commercial real estate sector. Presently, the total completed office stock in India surpasses 800 million square feet, with REIT-listed office inventory recorded at over 88 million square feet.
“The introduction of the SM REITs framework marks a pivotal moment for India’s commercial real estate sector. By enhancing transparency and offering robust investor protections, SM REITs are set to redefine portfolio diversification.
This framework will not only mitigate risks associated with under-construction projects but will also ensure steady returns through mandatory quarterly distributions, making real estate a more accessible and secure investment option for a broader range of investors,” said Anshuman Magazine, Chairman & CEO, India, Southeast Asia, Middle East & Africa, CBRE, said.
According to the report, Mumbai and Delhi recorded the highest potential SM REIT-ready completed office 70-75 mn. sq. ft. as of June 2024, followed by Bengaluru and Hyderabad with over 50 mn. sq. ft. and 30 mn. sq. ft each.
It is estimated that cumulatively, Delhi-NCR, Bengaluru and Hyderabad could add an additional supply of potential SM REIT-worthy stock of 36 mn. sq. ft. by 2026, while Mumbai is expected to add over 10 mn. sq. ft. of upcoming supply by 2026. Other cities such as Pune, Kolkata and Chennai would cumulatively record additional supply of potential SM REIT-worthy stock of 14 mn. sq. ft. over the next two years.
The implementation of the SM REITs framework marks a crucial advancement for India’s fractional ownership sector. This framework aims to formalize the real estate market, promoting transparency and drawing in a fresh cohort of investors interested in diversifying their portfolios through real estate exposure.
“The regulations governing SM (securitization and mutualization of real estate investment trusts) aim to bolster investor confidence by imposing restrictions on investing in properties under construction to mitigate project completion risks. Additionally, they mandate the quarterly distribution of net cash flow to unitholders to prevent potential fund diversion,” said Jasmeet Singh Chhabra, co-founder of JV Ventures.
Expanding on the achievements of conventional REITs and InvITs, which, as per the Reserve Bank of India, have collectively amassed an asset value of Rs 1.3 trillion over the last four years, SM REITs demonstrate significant potential.“SM REITs have the potential to organise the commercial real estate market even further.
They can drive enhancements in property maintenance, environmental, social, and governance (ESG) compliance through retrofitting, and result in a more desirable tenant profile. Ultimately, SM REITs could contribute to a more organized and efficient real estate ecosystem with a stronger asset profile, said Sudarshan Lodha Co-Founder and CEO Strata.
Moreover, the Union Budget, 2024-2025’s decision to reduce the holding period for determining long-term capital gains on listed business trusts — REITs and InvITs — from 36 to 12 months aligns these instruments with listed equity shares. This tax parity is expected to bolster the appeal of SM REITs as an investment vehicle.
“The alignment of SM REITs with recent tax reforms under the Union Budget 2024-25 is a game-changer for the investment landscape. Reducing the holding period for long-term capital gains will make SM REITs more attractive and accessible, driving increased participation and further institutionalizing the market.
This development positions SM REITs to play a pivotal role in reshaping India’s real estate ecosystem, enhancing both asset quality and investor confidence,” said Rami Kaushal, Managing Director, Consulting & Valuation Services, India, Middle East & Africa, CBRE.
Securities and Exchange Board of India (SEBI) this year established a regulatory framework for small and medium real estate investment trusts (SM REITs) through amendments to the SEBI (Real Estate Investment Trusts) Regulations, 2014. This follows the May 2023 consultation paper on Micro, Small, and Medium REITs (MSM REITs).
The new SM REIT regulations provide a clear framework for Fractional Ownership Platforms (FOPs), which are investment vehicles pooling funds to invest in securities issued by special purpose vehicles (SPVs) that acquire real estate assets on a fractional or undivided ownership basis.
Primarily targeting pre-leased, income-generating commercial properties, these platforms appeal to high-net-worth individuals (HNIs), non-resident Indians (NRIs), and overseas citizens of India (OCIs). Managed by individual entities, FOPs have been classified by SEBI as a form of collective pooled scheme, necessitating the implementation of the SM REIT regulations to ensure investor protection and market integrity.
