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Context: The Securities and Exchange Board of India (SEBI) has approved a new regulatory framework for small and medium real estate investment trusts (REITs).

Details

• SEBI has introduced a new framework for Small and Medium Real Estate Investment Trusts (SM REITs), which will allow fractional ownership of real estate assets.

Key benefits of the new framework:

• Lower asset value requirement: SM REITs can have an asset value of at least Rs 50 crore, compared to the current minimum asset value of Rs 500 crore for existing REITs. This will make it easier for smaller real estate projects to be financed through REITs.
• Ability to create separate schemes: SM REITs will be able to create separate schemes for owning real estate assets through special purpose vehicles (SPVs). This will allow SM REITs to invest in a wider range of assets and reduce risk.
• Reduced regulatory burden: The new framework will simplify the regulatory process for SM REITs. This will reduce compliance costs and make it easier for SM REITs to list and operate.

What are SM REITs?

• SM REITs are a type of real estate investment trust that can have an asset value of at least Rs 50 crore, compared to the existing minimum of Rs 500 crore for regular REITs. This means that smaller and more diverse real estate projects can be listed as SM REITs, opening up more opportunities for investors.
• SM REITs will also have the flexibility to create separate schemes for owning different types of real estate, such as residential, commercial, industrial, or mixed-use. Each scheme will have its special purpose vehicle (SPV), which is a company that holds the real estate assets.
• Investors can buy units of the SM REITs or the individual schemes, depending on their preference and risk appetite.

Why did SEBI launch SM REITs?

• SEBI decided to launch SM REITs after noticing an increasing interest among investors in real estate as an asset class.
• According to the SEBI Chairperson, SM REITs will help in "democratising" the real estate sector and making it more accessible and affordable for retail investors.
• SEBI also hopes that SM REITs will boost the liquidity and transparency of the real estate market, as well as encourage more developers to list their projects and comply with the regulatory norms.

What are the benefits of investing in SM REITs?

• Diversification: SM REITs can help investors diversify their portfolios by adding exposure to different segments and geographies of the real estate market.
• Income: SM REITs are required to distribute at least 90% of their net distributable cash flows to their unitholders every quarter, providing a steady source of income.
• Capital appreciation: SM REITs can also offer capital appreciation potential, as the value of the underlying real estate assets may increase over time.
• Tax efficiency: SM REITs are exempt from dividend distribution tax (DDT), and the income received by unitholders is taxed only at their applicable slab rates.
• Professional management: SM REITs are managed by qualified and experienced investment managers, who are responsible for selecting, acquiring, developing, and maintaining real estate assets.

Conclusion

• The new framework for SM REITs is expected to have a positive impact on the real estate sector in India. It is likely to increase investment in the sector, boost economic growth, and create new jobs.

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Securities and Exchange Board of India (SEBI): https://www.iasgyan.in/daily-current-affairs/securities-and-exchange-board-of-india-sebi

PRACTICE QUESTION Q. What is the primary role of the Securities and Exchange Board of India (SEBI) in regulating the securities market, and what are some key initiatives or regulations implemented by SEBI to ensure investor protection and market integrity?