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Last month Securities and Exchange Board of India (SEBI) greenlighted the launch of micro, small and medium real estate investment trusts (REITs) paving the way for unregulated fractional ownership platforms to function under a REIT framework. Mumbai-based hBits intends to be first off the block in launching a REIT. “We are working on creating the structure that will be required….our aim is to be the first fractional platform that lists as a MSM REIT,” hBits founder and CEO Shiv Parekh told businessline.
The fractional ownership platform has assets under management of ₹260 crore, which it intends to double in the next four months and take that to ₹1,000 crore by the end of the next fiscal year.
Fractional ownership platforms raise money from investors through a special-purpose vehicle, and the funds are used to own and manage properties. Effectively, the concept involves several investors who jointly own a fraction of the rent-yielding real estate asset, which can be offices, warehouses, malls, and data centres.
Parekh feels that being regulated will increase interest in such platforms. Following are edited excerpts of the interview with Parekh.
How would you assess the past year for fractional ownership platforms and what would be the impact of SEBI regulations?
Fractional ownership, as a concept, has picked up a lot of traction in the country. It’s a relatively new concept, about five or six years old. This year has been monumental for the fractional ownership space. One of the biggest reasons is the SEBI regulation that has come into play.
We have seen a lot of interest in this asset class as an investment. As an investment product, it makes a lot of sense, because you get 8-9 per cent rental yield and along with appreciation, you can make a 15 per cent IRR (internal rate of return). Compared to even investing in a broad index, you can make higher returns with minimal downside risk.
First, as a concept it didn’t exist, and after it came as a concept, it was not regulated by SEBI, so people were not sure. But now that’s changed and overall investor interest is growing significantly.
As a company, it has been a very important year for us. We picked up quite a few assets in Mumbai. We are also excited for 2024 because in my opinion, this industry is going to explode with the new regulation. Already the product was great, now investor interest as well as distributor interest is going to increase substantially. On the flip side, there are numerous developers seeking an exit strategy who previously had limited options available. Commercial leasing in 2023 has been touching 2019 highs, at pre-Covid levels. So there are a lot of assets that are leased out and now developers want to exit them.
What kind of assets are you evaluating?
We have probably a database of about ₹30,000-odd crore worth of assets that we sourced from the market in the last 12 months. There are a lot of assets in the market. But obviously, not all the assets are worthy of investment. We look at a lot of criteria — it should be in a good micro market, it should be a Grade A asset, long term agreement, and a good market capital value. Ideally, we should negotiate for below market value, so that investors come in and make a good return.
Is there enough quality commercial assets in the market?
If we just talk about offices, there is 800 million sq ft of Grade A offices in the top six cities and that is our focus markets.
To give some examples, in Mumbai we work with Kanakia Developers, who are Grade A builders. There are other Grade A developers like Boomerang and Wall Street. We work with Ajmera, a listed company. In Pune, we are talking to 3-4 developers; in Bengaluru, we are talking to one of the top three developers, and they have an option for a REIT. So there’s a lot of Grade A stock that’s available.
The question, however, is not about it being Grade A stock, but whether in that asset we have rented it at the right pricing. Are we negotiating the right pricing? It’s about getting Grade A stock at the right pricing with the right tenant and that’s where we add value.
How has your growth metrics been and what is your growth outlook?
Now, we have 60,000 registered users on our platform. I think three years ago, we must have been at 10,000 users. Our assets under management right now is ₹260 crore, we’re looking to double that in the next four months. Currently, we have 260,000 sq ft and after four months, we will be up to about half a million sq ft. Our target for the next financial year is to go from ₹260 crore to ₹1,000 crore in investments.
Have you started work on the REIT structure?
The details are not fully announced but we have started working towards it and are building the tech platform that will enable investment at a lower ticket size, so it’s completely digital. We are working on creating the structure that will be required because the regulator has given six plus six months to migrate, but our aim is to be the first fractional platform that lists as a MSM REIT.