For decades, premium commercial real estate has remained an exclusive club of HNIs, institutional investors, pension and sovereign funds. Unless of course, you had crores to invest, specialised market knowledge, and the patience to manage complex properties, you were effectively locked out of a stable, income-generating asset class.
Then came Real Estate Investment Trusts (REITs) and Fractional Ownership Platforms (FOPs) —the first steps toward democratising real estate investing. While these innovations opened doors, certain limitations remained that kept many investors watching from the sidelines.
That all changed in March 2024.
SEBI introduced Small and Medium REITs (SM REITs), to transform investments in the real estate space.
Now, with just INR 10 lakh—a fraction of what direct ownership requires, you can invest in commercial and residential income-generating properties, with professional management, at a fraction of the traditional entry cost.
Not just that, you can trade SM REIT units on the NSE and BSE exactly like you trade stocks. Your investments sit conveniently in your demat account, alongside your other securities. No paperwork nightmares, no tenant headaches, no capital lockup.
In short, SM REITs are democratising access to high-quality, rent-yielding properties.
In this blog, I’ll walk you through how SM REITs work, the opportunities they present, the risks to be aware of, and how they might fit into your broader wealth creation strategy.
Let’s dive in.
What are SM REITs?
SM REITs allow retail investors to own institutional-grade real estate assets. They offer flexibility and regulated investment opportunities.
SM REITs are essentially a blend of fractional ownership and traditional REITs, providing individual investors access to rent-yielding real estate such as office buildings, malls, hotels, and hospitals.
Here’s why SM REITs are a game-changer for the industry, property owners and investors –
- Industry: Benefits from increased transparency and efficiency.
- Property owners: Gain access to fresh funding sources for smaller income-producing properties that previously couldn’t qualify for traditional REITs.
- Investors: Access to commercial real estate investments with lower capital and lesser involvement. Investors also benefit from better property management practices and more accurate pricing.
| Here’s an explainer of how these SM REITs actually operate — |
How are SM REITs different from REITs and Fractional Ownership Platforms?
Over the past few years, the Fractional Ownership Platform (FOP) market in India has experienced rapid growth. The size of the fractional ownership market based on Assets Under Management (AUM) is USD 500 million.
Property Share and Strata which are the two largest players in the fractional ownership space account for more than 50% of the market. Other players in the fractional ownership space are HBits, Assetmonk, ALYF, WiseX, and YOURS.
While the FOP market grew in size and retail investor interest rose, a critical aspect remained unaddressed – regulatory oversight was mostly ambiguous or absent.
To formalise this growing segment, the Securities and Exchange Board of India (SEBI) notified SM REITs through amendments made to the already existing REIT regulations.
The notifications now require every FOP who wishes to operate such investment schemes to be registered as an SM REIT and be licensed under SEBI.
The SM REIT opportunity
The REIT market in India grew from around USD 3.6 billion to USD 15.6 billion in Gross Asset Value within a span of five years.
Similarly, the SM REIT segment is expected to grow exponentially.
SEBI’s focus on transparency and accountability through its regulatory framework is instilling trust and confidence amongst new-age wealth creators with capital and intent.
The good news is that the supply looks promising too.
As per a JLL report in 2024, more than 40% of the overall Grade A office stock in the top seven cities of India, currently valued at ~USD 48 billion is ‘SM REIT-worthy’. Markets like Mumbai and Delhi NCR offer the biggest opportunities given the boom of small and mid-sized projects. Even tech hubs like Bengaluru, Pune and Hyderabad offer growth opportunities where leased mid-sized assets are potential investment opportunities.
According to a CBRE report, the SM REIT market is poised to become a projected market of over USD 60 billion and/or over 350 million sq. ft. of office space by 2026.
How to evaluate an SM REIT?
If you are looking at investing in real estate through an SM REIT, the biggest advantage you have is that you can choose specific properties, unlike traditional REITs that offer blended exposure across multiple assets.
For investors looking to diversify into real estate without the challenges of direct ownership, SM REITs present an interesting opportunity. Before investing, here are a few key factors to consider:
1. Investment fit: Check the alignment with your investment goals, time horizon and risk appetite.
2. Type of property: The kind of property an SM REIT invests in can significantly impact its performance. Some focus on commercial properties, others on residential assets, while some offer a diversified mix. Also, keep in mind the location and age of the property.
3. Financial performance: Assess key metrics such as –
- Dividend yield
- Fee structure (management fees, performance fees, etc.)
- Debt-to-asset ratio (lower is generally safer)
- Interest coverage ratio (higher is better)
4. Management team: A competent and experienced investment manager can make all the difference. Look into their track record, investment strategy, and execution capabilities.
5. Risk assessment: SM REITs are new in India and have no track record for studying long-term performance, so make sure you have evaluated the various risks involved –
- Market risk: Your returns will be based on how the real estate market is faring, demand and the fluctuations in property value.
- Concentration risk: SM REITs invest in a single property or a small portfolio, which means a higher concentration risk.
- Low occupancy risk: Revenues rely heavily on rental income so check the current occupancy rate, projections, and past data.
- Tenant risk: Assess the tenant’s financial health
6. Taxation: Recent Budget 2024 changes have made SM REIT taxation more favourable for investors:
- The holding period for long-term capital gains (LTCG) reduced from 3 years to 1 year.
- LTCG tax rate lowered to 12.5%, in line with listed stocks.
- Dividend income remains tax-free, while interest is taxed as per the investor’s slab rate.
- Return of capital component remains tax-free, making the net tax outflow on yields between 5-10%.
How to invest in SM REITs
In India’s first SM REIT IPO, Property Share Investment Trust (PSIT) was listed on 10th December, 2024. It raised ₹353 and was over-subscribed by ~1.2 times.
And I believe this is just the beginning.
The listing of SM REITs on public exchanges will offer more access and flexibility to investors.
At present, several investment avenues are available:
1. Direct exchange purchase: The most straightforward approach is buying units directly through your demat account on the NSE or BSE. For example, you can purchase units of Embassy Office Parks REIT, Mindspace Business Parks REIT, or Brookfield India Real Estate Trust through brokers with standard brokerage fees.
You can also participate in the initial public offering (IPO) of a REIT, getting in at the ground level of a new real estate investment opportunity.
2. REIT-focused Mutual Funds: Several asset management companies offer mutual fund schemes with significant REIT exposure:
- Tata Real Estate Opportunities Fund allocates approximately 25-30% to smaller REITs.
- HDFC Real Estate Fund includes both established and emerging REITs in its portfolio.
- SBI Infrastructure Fund has recently increased its REIT allocation, including smaller players.
3. REIT ETFs: While still developing in India, REIT ETFs offer a basket approach:
- Nippon India REIT ETF provides exposure across market capitalisations.
- ICICI Prudential REIT Index Fund tracks a composite of Indian REITs.
4. Fractional Ownership Platforms: Digital platforms like Strata offer fractional ownership in commercial properties that may eventually be converted to REITs.
5. Portfolio Management Services (PMS): Wealth management firms offer HNI investors exposure to REITs through PMS. At Dezerv, our equity strategy has exposure to REITs and InVITs.
Each option carries different minimum investment requirements, fee structures, and liquidity considerations, allowing investors to choose based on their investment capacity and objectives.
As with any investment, do your homework — read the scheme’s offer document and understand the fine print. And consider your overall portfolio – ensure you’re not putting an outsized portion of your savings into one property scheme.
Currently, there are 5 SEBI registered SM REITs in India. Here’s a deep dive into Strata, one of the leading players in this space.
Case study: Strata
As one of India’s leading tech-enabled commercial real estate investment platforms, Strata has brought fractional investing to the mainstream, making high-quality commercial properties accessible to a broader audience.
Founded in 2019, Strata has already built a 3000+ strong investor base, offering professionally managed exposure to rent-yielding assets like offices, warehouses, industrial properties, and hospitals.
Among its portfolio, some of its notable properties include the iconic PUMA India’s headquarters and CCD Square in Bengaluru.
Two things about Strata particularly caught my attention:
1. Tech-first investing (No physical visits needed)
Strata has a completely digital onboarding process, a concept that is virtually unheard of in the real estate industry. This eliminates traditional real estate constraints like site visits, negotiations, and extensive paperwork, making real estate investment as convenient as investing in any other asset class online. At Dezerv, I truly resonate with a tech-first approach, especially for the new-age wealth creators.
2. NRI vote of confidence
Over 17% of Strata’s investor base consists of NRIs, signalling renewed trust in India’s commercial real estate market. As global investors increasingly look toward India as a high-growth opportunity, platforms like Strata are making participation simpler and more accessible.
Just two months ago, Strata received SEBI approval to launch its SM-REIT scheme under the name Strata SM REIT and it plans to launch up to six SM REIT schemes in 2025-26, eventually scaling up to one scheme every month—it’ll be interesting to see how that plays out.
You can check out their website here.
In summary
SM REITs mark a new era of accessible real estate investing in India. They fill a crucial gap between direct property ownership and larger REIT investments.
SM REITs provide investors with a new avenue for wealth creation. More importantly, it meets the requirements of wealth creators – fractional ownership made easy, liquid, and potentially rewarding.
As the real estate market evolves, SM REITs could unlock billions in value, given the increasing demand for real estate and the vast pool of properties waiting to be monetised.
As the market evolves with players like Strata and PropShare paving the way, it is a great time to learn more about SM REITs.
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