SM REIT Registration — SEBI 2024

A Small and Medium Real Estate Investment Trust (SM REIT) is a SEBI-regulated vehicle introduced by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations 2024, notified on March 8, 2024, specifically for fractional ownership platforms and smaller real estate portfolios. Unlike a regular REIT which must have a minimum asset value of Rs 500 crore, an SM REIT can be set up with a minimum scheme asset value of Rs 50 crore per scheme under Regulation 2(1)(zma) of the SEBI (REIT) Regulations 2014 as amended. Each SM REIT scheme must hold completed and rent-generating real estate assets, not under-construction properties. The investment manager of an SM REIT must have a minimum net worth of Rs 20 crore under Regulation 4A of the amended REIT Regulations, whereas a regular REIT's manager requires Rs 80 crore net worth.

Under Regulation 4A of the SEBI (Real Estate Investment Trusts) (Amendment) Regulations 2024, the Investment Manager for an SM REIT must be a body corporate incorporated in India with a minimum net worth of Rs 20 crore, at least two years of experience in real estate or fund management, and must not have been found guilty of any economic offence. The Investment Manager's key personnel must collectively have at least five years of experience in real estate development, fund management, or property management. The entity must register with SEBI as an SM REIT Investment Manager before launching any scheme, and registration is non-transferable. SEBI has the power to suspend or cancel registration under Regulation 33 of the SEBI (REIT) Regulations 2014 for non-compliance.

Each SM REIT scheme must issue a Scheme Information Document (SID) compliant with Schedule VIII of the SEBI (Real Estate Investment Trusts) (Amendment) Regulations 2024, disclosing asset details, valuation reports, risk factors, and financial projections. The SM REIT must distribute at least 90% of its distributable cash flows to unitholders in each quarter under Regulation 22C as inserted by the 2024 amendment. Annual valuation of scheme assets by a SEBI-registered valuer under the Companies Act 2013 is mandatory under Regulation 21. The Investment Manager must file half-yearly and annual financial statements with SEBI and the stock exchange on which SM REIT units are listed under Regulation 23 of the REIT Regulations 2014.

The tax treatment of SM REIT units follows the same framework as regular REITs under Section 10(23FC), Section 10(23FCA), and Section 115UA of the Income Tax Act 1961. Distributions that represent interest income from special purpose vehicles (SPVs) pass through tax-free at the REIT level and are taxable in the hands of the unitholder at applicable slab rates under Section 10(23FC)(a). Dividend distributions from SPVs that have opted for the Section 115BAA regime are tax-exempt for the unitholder. Capital gains on sale of SM REIT units listed on a recognised stock exchange are taxed under Section 112A (long-term, held over 36 months) or Section 111A (short-term), subject to securities transaction tax (STT) under Chapter VII of the Finance Act 2004.

Yes, SEBI's circular SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2024/26 dated March 18, 2024 gave existing online platforms offering fractional ownership of real estate (other than agricultural land) a migration period to register as SM REITs or wind down operations. Platforms that were operational before the 2024 amendment were required to file a migration application with SEBI by specified deadlines, migrating their pool of assets into SEBI-compliant SM REIT schemes. The migration requires each underlying asset to be transferred into a scheme SPV, and existing fractional investors' interests must be converted into SM REIT units with proper stamp duty treatment under applicable state stamp acts. Platforms that fail to migrate face regulatory action under Sections 11 and 11B of the Securities and Exchange Board of India Act 1992.