Mumbai and Delhi NCR account for nearly 50 per cent of the SM-REIT worthy assets across the top seven cities, with Bengaluru and Hyderabad following with 15 and 11 per cent shares
Small and medium real estate investment trusts (SM REITs) are projected to see significant growth in India’s realty market, according to a report by commercial real estate and investment management firm JLL India. Titled JLL Property Share, the report reveals that the Indian fractional ownership market is expected to grow over 10 times and cross over $5 billion by 2030.
The fractional ownership sector holds immense potential with a wide portfolio of over 328 million sq. ft. of office assets valued at approximately $48 billion. Office assets are considered suitable for investment in SM Reits, according to the report.
“The robust demand for rent-yielding assets and the presence of a professionally managed platform make SM Reits an enticing choice for retail investors,” said Dr Samantak Das, chief economist and head of research and Reits, India, JLL.
Fractional ownership allows multiple investors to collectively own a share or fraction of a high-value asset, such as real estate, without having to buy the entire property. Here, investors own a fraction or share of a physically undivided property which lowers the entry barriers and allows for participation by a diverse investor base.
To regulate fractional buying, fractional ownership platforms (FOPs) act as process managers to streamline the buying and selling process. FOPs form the formal channel that allows retail investors to tap into primarily pre-leased commercial real estate, including office spaces, warehouses, or even shopping malls, at a fraction of the total investment outlay.
The cost of asset acquisition is divided among several investors who invest in a specific asset-backed scheme under a special purpose vehicle (SPV) established by the FOP. The investors earn returns in the form of rentals as well as long-term value appreciation of the property upon exit, with distributions made after the deduction of management fees and other maintenance expenses.
SM Reits Investments Growing Across Indian Cities
According to the report, Mumbai and Delhi NCR have emerged as top spots for asset acquisition opportunities under SM Reits investments, as both cities offer well-managed portfolios of small and mid-sized leased assets under a strata ownership model (distinct entities owning specific units within a larger development).
“With diverse occupier bases, Mumbai’s SBD North and Core and Fringe BKC corridors present significant SM Reit opportunities,” the report says.
Mumbai, Delhi NCR, and Bengaluru lead the SM Reits market, accounting for 73 per cent of worthy assets in the top-seven cities’ office sector. With over 55 per cent 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.
Kunal Moktan, co-founder and CEO, Property Share said: “Through the SM Reits regulations, the Securities and Exchange Board of India (Sebi) has effectively introduced an entirely new asset class to the retail and institutional investor universe, continuing the march towards securitisation of real estate assets that started with Reits regulations in 2014.”
He added that SM Reits provide a big opportunity to monetise income-generating assets that currently do not have access to liquidity. “When paired with technology, these assets have the potential to completely transform the real estate investment landscape in the country,” he added.
Mumbai: The metropolis leads this investment sector with a $9 billion opportunity for SM Reits. “With diverse occupier bases, Mumbai’s SBD North and Core and Fringe BKC corridors present significant SM Reit opportunities,” the report says.
Delhi NCR: Gurugram leads the office segment with 61 per cent of the SM Reits market share. FOPs could explore potential opportunities the commercial corridors of Golf Course Extension, Golf Course Road, and MG Road, as they present a $3 billion investment potential for SM Reits, the study adds. The Prime NH-8 corridor with around 6 million sq ft of SM Reits-worthy assets amounts to a significant $1 billion in opportunity.
Bengaluru: With its strong tech-driven demand from both global and domestic firms, the city is among the most well-occupied in the country. Its robust office ecosystem presents an asset portfolio that is relevant for SM Reits, according to the report.
“However, with large tech parks that are either under institutional or single developer ownership accounting for a large chunk of the total Grade A office market in the city, the SM Reits opportunity stands at just 51 million sq. ft, around one-fourth of the total Grade A office stock,” the report says.
The biggest corridors in the city are the ORR Southeast stretch and Whitefield in terms of physical asset availabilities. They are also the biggest markets when it comes to occupier demand presenting the best opportunities for SM Reits within the defined asset value parameter of Rs 500 crore.
Hyderabad: With its booming Grade A office stock and robust demand from global GCCs, the city offers good opportunities for SM Reits, the report says. Hitec and Gachibowli corridors lead the market, accounting for 84 per cent of the available potential with a $3.7 billion opportunity. The city provides options for well-leased and mid-sized assets.
The fractional ownership market in India is currently valued at around $500 million. “This market is expected to surpass $5 billion in assets under management (AUM) by 2030 despite regulatory compliance challenges,” the report further says.