Regulatory changes in equity ownership are making it more accessible, says Sudarshan Lodha, Cofounder & CEO, Strata.

The introduction of SM REITs reduced the entry size for investors, lowering the minimum investment from INR 25 lakhs to INR 10 lakhs. This regulatory change makes fractional ownership more accessible to a wider group of investors, democratizing access to high-yield real estate opportunities that were previously limited to high net worth individuals.

“Although real estate investment has long been a cornerstone of wealth accumulation, small ownership is still in its infancy in India. However, it is gaining momentum, especially in real estate segments such as office spaces and co-working spaces,” it said. Sudarshan Lodha, Cofounder & CEO, Strata, in an email interview with Zeebiz.com.

Edited quotes:

• What are the key factors that investors should consider when choosing a fractional ownership platform, and how can they minimize the associated risks?

When choosing a fractional ownership platform (FOP) for real estate investment, it is important to check key factors such as past performance, current assets under management, successful exits, and the strength of their due diligence process. The type and quality of goods offered also play an important role in evaluating the reliability of this platform.

Like any investment, real estate ownership carries risks. These include tenant vacancies, market volatility, and macroeconomic shifts that can affect property values ​​and rental yields. It is important that investors weigh these risks carefully and choose platforms with a strong track record of mitigating such challenges.

• With the growing popularity of fractional ownership in India, how have you seen this model evolve, especially in the commercial real estate space?

With the growing popularity of fractional ownership in India, especially in commercial real estate (CRE), the model has undergone significant changes. Another major change has been the introduction of regulation by SEBI, which has brought greater transparency and accountability to the sector. Assets ranging from Rs 50 crore to Rs 500 crore now come under the Small and Medium REITs (SM REITs) category, which provides a more structured framework for share ownership.

Additionally, the introduction of SM REITs reduced the entry size for investors, lowering the minimum investment from INR 25 lakhs to INR 10 lakhs. This regulatory change makes fractional ownership more accessible to a wider group of investors, democratizing access to high-yield real estate opportunities that were previously limited to high net worth individuals. This has not only boosted investor confidence in the property sector but has also created a new environment for property investment, opening up lucrative opportunities for retail investors in a regulated environment.

• As new regulations come into effect, can you explain what SM REITs are and how they differ from regular REITs?

SM REITs, or Small and Medium Real Estate Investment Trusts, are a new category introduced as part of the regulatory framework governing share ownership in India. These REITs cover assets ranging from INR 50 crore to INR 500 crore, providing a structured way of investing in small and medium real estate.

Unlike traditional REITs, which typically manage large, high-value assets such as large office buildings or shopping malls, SM REITs focus on smaller, more accessible assets. Another key difference between traditional REITs and Specialized/SM REITs is in the level of control and risk management they offer investors. Traditional REITs work in a similar way to mutual funds, where investors pool their funds and fund managers make decisions about which properties to invest in. As a result, investors have limited say in asset selection, and there is the possibility of employer gaps affecting investment returns. .

In contrast, SM REITs, which are often structured around fractional ownership models, give investors greater control over the specific assets in which they wish to invest. In addition, lessor-related risk is significantly reduced in SM REITs, as properties are typically leased to tenants for upfront investment. fixed periods before the investment is made. This ensures continuous rental income without the risk of gaps during the investment period, which improves predictability and reduces risk.

• How does REIT investing differ from fractional ownership? Which share ownership is most easily accepted by Indian investors? Furthermore, are REITs, fractional ownership as profitable as traditional real estate investments?

Real Estate Investment Trusts (REITs) and fractional ownership are both attractive ways to invest in real estate, yet they are very different. REITs act as income-producing property management companies, allowing investors to buy shares in the trust. In contrast, fractional ownership provides individuals with direct ownership of shares in a particular property, giving them greater control over property selection, transparency over tenant tenure, etc.

While real estate investment has long been a staple of wealth accumulation, fractional ownership is still in its infancy in India. However, it is gaining, especially in commercial real estate categories such as office spaces and co-working spaces. Investors are attracted to fractional ownership for their low capital requirements, the potential for diversification, and the opportunity to be directly involved in their investments. As the market continues to evolve, fractional ownership presents a popular alternative to traditional real estate and REITs, offering unique benefits to the modern investor.

• In what ways do you believe SM REITs can help investors build long-term wealth or generate income?

SM REITs provide a structured way for investors to build long-term wealth and generate income from real estate. These REITs typically focus on medium-sized commercial properties, offering investors the benefit of rental income from pre-leased properties. Since tenants are already secured for a fixed term, SM REITs significantly reduce the risk of vacancies, ensuring stable cash flow.
Another benefit is the ability to invest in real estate for sale, which can improve wealth over time. SM REITs also operate under a regulated framework, which ensures transparency and gives investors more control over asset selection, unlike traditional REITs. This makes them a viable option for those looking for a low-maintenance, income-generating investment.