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In a decisive move to safeguard small-scale investors, the Securities and Exchange Board of India (SEBI) has proposed new regulations for online platforms that offer fractional ownership of real estate assets. This emerging sector, which has seen a significant surge over the past three years, enables investors to buy small stakes in malls, warehouses, and other commercial properties.
Fractional ownership refers to the division of a property into smaller, more affordable units, allowing individual investors to participate in the real estate market without bearing the full cost of a property. The minimum investment required on these platforms typically falls between 100,000 and 250,000 rupees.
SEBI's proposed regulations come in response to growing concerns about the absence of standard, uniform selling practices, potential misinformation, and the absence of independent valuation or diligence on these platforms. "The absence of these measures could result in investors falling prey to mis-selling," cautioned SEBI in a discussion paper released late Friday. This document marks the first stage in SEBI's process of formulating new rules.
In order to promote transparency and accountability, the regulator suggested that these platforms should register under the Regulatory Framework for Micro, Small, and Medium REITs. This would entail the appointment of separate trustees, sponsors, and investment managers. Furthermore, the sponsor and investment manager would be required to maintain a net worth of 20 million rupees and 10 million rupees, respectively.
According to SEBI, the real estate assets listed on these platforms closely resemble those defined under the REIT Regulations. The concept of fractional ownership has been operational globally since 2015, with significant traction in markets such as the United States and the United Arab Emirates.
SEBI's proposed regulation serves as a critical step in standardizing fractional ownership platforms and ensuring robust investor protection. As the sector continues to grow, regulatory oversight will become increasingly vital to maintain trust and stability in this emerging market.
In conclusion, as India's market regulator, SEBI is working proactively to protect small investors in the rapidly evolving fractional real estate sector. The proposed regulations aim to standardize operations, ensure independent valuation, and maintain transparency, providing a safer investment environment for small-scale investors. The next step in the process will be to formalize these proposed rules, thus reinforcing investor confidence in this burgeoning sector.
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