Small and Medium Real Estate Investment Trusts (SM REITs) are expected to see significant growth in India’s realty market, according to a recent report by JLL Property Share. The report further stated that the Indian fractional ownership market is expected to grow over 10 times and surpass $5 billion by 2030.

“Of the current Grade A office space in seven leading Indian cities, $48 billion worth of it is fast becoming a perfect match to the investment needs of SM REITs, making the sector more promising. Among the top markets to identify suitable asset acquisition prospects, Mumbai and Delhi NCR stand out as golden destinations since there are many projects of comparatively smaller and mid-size,” says Shiv Parekh, Founder & CEO of hBits, fractional ownership platform.

What Are The Benefits And Risks Of Investing In SM REITs? 

SM REITs primarily focus on receiving high-quality compliant commercial spaces, with ticket sizes from Rs 10 lakh to allow the general public to invest in them. “They give the investor access to fresh property categories that have demonstrated increasing growth rates and the opportunity to yield profits through rental income and property value appreciation,” says Parekh.

SM REITs tend to offer a better yield than large-cap REITs. “This is a fact because SM REITs tend to own properties with stable rental income, offering investors a higher rate of return. They also favour growth prospects in new industries, enabling investors to get bucks returned in the form of capital appreciation and rental income,” Parekh states. However, SM REITs are subject to specific risks that hinge on regulatory compliance and market volatility.

But considering its benefits and accessibility, SM REITs will help create investor confidence and expand participation in the commercial real estate sector. 

“Recent SEBI deregulation, which permits floated SM REITs with a Rs 50 crore minimum asset value to enter the segment, is narrating to bolster the segment further and follow the best standards set in developed countries,” says Parekh.

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Are There Specific Considerations Middle-Class Investors Should Be Aware Of?

SM REITs can be a good choice for middle-class citizens who want to add diversity to their retirement portfolio, considering factors such as lower liquidity, diversification, etc. However, a balanced approach is important.

Better Than Traditional Property Investment? 

“One of the main advantages is that SM REITs are far more liquid than direct real estate holdings. In contrast to traditional property, which is often hard to sell and illiquid, SM REITs will be traded on stock exchanges as investors can easily buy or sell them. Such liquidity is a boon regarding retirement planning because it allows investors to free up funds if they need them urgently,” Parekh explains.

Diversification: By buying various types of commercial properties across different sectors, SM REITs help mitigate risks and deliver an even income stream. “Diversification becomes crucial for retirement portfolios, where steady revenue streams are necessary for maintaining livelihood through emergencies,” Parekh states.

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Long-term Investment: Investors must recognize that SM REITs are intended for long-term investment, Parekh says, highlighting that these investments require shareholders to retain their units for a minimum of five years. However, this long-term perspective may mitigate market volatility and yield more consistent revenues.

How Resilient Are SM REITs Compared To Other Investments?

Parekh says, “Considering SEBI’s support SM REITs and investment in real estate overall have been observed to be highly resistant to economic downturns compared to other investment options.” 

Stable income from pre-leased commercial properties, diversification across various property sectors, proficient management, transparent regulations, efficient market operations, tenant retention, supply and pricing influence, and long-term strategic planning are factors that contribute to such resilience. “These elements consistently maintain stable operational cash flows and effectively mitigate risks, making SM REITs attractive for investors seeking stable and predictable returns,” he says.