India’s SEBI to regulate platforms offering fractional ownership of real estate assets

The Securities and Exchange Board of India (SEBI) has proposed regulating all online platform that offer fractional ownership of real estate assets, in a bid to provide protection to small investors.

Fractional ownership typically refers to small investment holdings of real estate assets. A number of web-based platforms have mushroomed in the past three years which allow investors to invest in malls, warehouses, buildings and so forth.

The minimum investment on these platforms typically ranges from ₹100,000 to ₹250,000.

The lack of standard uniform selling practices and lack of independent valuation, or of diligence, of information or materials provided to potential investors could result in investors falling prey to mis-selling.

A discussion paper is normally the first step ahead of formulating new rules by SEBI.

The regulator proposed that such platforms must be registered under Regulatory Framework for Micro, Small and Medium REITs, where it should have separate trustees, sponsors and investment managers.

The sponsor and investment manager should have a net worth of ₹20 million and ₹10 million, respectively.

The underlying real estate assets offered on these platforms are similar to the real estate or property defined under the REIT Regulations.

Globally such fractional ownership has been in existence since 2015 in markets such as the United States and United Arab Emirates.