 "Mumbai, Delhi, Bengaluru: Top cities for fractional ownership REITS")
India's estate market is witnessing a revolutionary trend – fractional ownership. This concept allows multiple investors to co-own a high-value property, like a luxury apartment or commercial space, without the burden of purchasing the entire asset. According to a recent report by property consulting firm JLL, the fractional ownership market in India is projected to grow over 10 times and exceed $5 billion by 2030.
Office spaces suitable for Small and Medium Enterprises Real Estate Investment Trusts (SM REITs) hold immense potential. India boasts over 328 million sq. ft. of such office assets, valued at approximately $48 billion.
Hotspots for Investment: Mumbai and Delhi NCR are leading the charge, offering lucrative opportunities for SM REIT investments. Additionally, the tech markets display notable growth potential, with attractive investment opportunities found in well-leased mid-sized assets that fall under the scope of SM REITs, noted the report.
SM REIT potential in India's top 7 markets:
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As seen in the table above, Mumbai, Delhi NCR, and Bengaluru lead the SM REIT market, representing 73% of worthy assets in the top seven cities' office sector.
What this means for investors:
Fractional ownership, coupled with the rise of SM REITs, opens up exciting investment opportunities in Indian real estate. Investors can now participate in the market with lower capital compared to traditional methods.
"With over 55% of the Grade A office market, equivalent to 84.4 million sq ft of assets, available and suitable for SM REITs, the investment potential reaches approximately $18.7 billion. The robust demand for rent-yielding assets and the presence of a professionally managed platform makes SM REITs an enticing choice for retail investors. Considering the high capital values in Mumbai, SM REITs prove to be a superior option over smaller office formats, eliminating the
increased costs associated with acquiring and managing such properties.” said Dr Samantak Das, Chief Economist & Head of Research and REIS, India, JLL.
Mumbai leads with a $ 9 billion opportunity for SM REITs, followed by Delhi NCR. Both cities offer wellmanaged portfolios of small and mid-sized leased assets under a strata ownership model (distinct entities owning specific units within a larger development).
Where to invest in Mumbai?
SBD North and Core & Fringe BKC Corridors: These areas offer attractive SM REIT prospects due to their diverse range of tenants (occupiers). This reduces risk for investors.
Where to invest in Delhi NCR?
Gurugram dominates the Delhi NCR office segment, capturing 61% of the SM REIT market. Commercial corridors of Golf Course Extension, Golf Course Road, and MG Road present a $3 billion investment potential for SM REITs, indicating where such FOPs (Fractional Ownership Platforms) could explore potential opportunities. The Prime NH-8 corridor is also promising, with around 6 million sq ft of SM REIT-worthy assets amounting to a substantial USD 1 billion opportunity.
Where to invest in Bengaluru?
- High Occupancy: Bengaluru boasts a strong office market with high occupancy rates, driven by major tech companies (both domestic and international).
- Limited SM REIT Options: Despite the strong market, suitable assets for SM REITs are limited due to large tech parks owned by single developers or institutions. This restricts the total investable space to approximately 51 million sq ft, representing only a quarter of the Grade A office space.
- Promising Areas: ORR Southeast Stretch, Whitefield (high occupier demand for well-leased assets within the SM REIT investment range), Off-CBD Corridor (Koramangala to Bannerghatta Road and Mysore Road): This area features numerous smaller to mid-sized commercial office projects suitable for SM REIT investments.
Where to invest in Hyderabad?
Hyderabad's office market is thriving with Grade A office spaces experiencing high demand, particularly from multinational corporations from the Gulf Cooperation Council (GCC).
Prime Corridors: Hitec City and Gachibowli hold the most significant opportunities, comprising 84% of the investable space and representing a potential investment value of USD 3.7 billion.
Attractive Investment Climate: Hyderabad offers well-leased mid-sized assets at competitive valuations, making it an ideal location for SM REITs to build their portfolios.
How SM REITS work?
SM REITs, or Small and Medium Enterprises Real Estate Investment Trusts, offer a new way for individuals to invest in commercial real estate in India. Here's a breakdown of how they function:
SM REIT schemes are not allowed to invest in under-construction or non-revenue generating real estate assets. At least 95% of the value of the schemes’ assets must be invested in completed and revenue generating properties
and the remaining 5% can be invested in unencumbered liquid assets, such as cash or short-term investments.
SM REITs target mid-sized commercial properties. Individual properties must be valued between Rs. 50 crore and Rs. 500 crore. This allows them to focus on assets that might be too expensive for individual investors to purchase outright.
Given the relatively nascent nature of the fractional ownership market, the minimum subscription size is kept at Rs 10 lakh. This is still lower compared to the earlier minimum size of Rs 20-25 lakh size set by Fractional Ownership Platforms (FOPs). Moreover, as the industry matures, SEBI is expected to progressively reduce the ticket size, just like they did with ‘big REITs.
Investors holding units of SM REIT schemes will be entitled to similar tax benefits and a similar risk-reward spectrum as those investing in ‘big REITs’