The board of the Securities and Exchange Board of India on Saturday approved a proposal to introduce a framework for fractional ownership of real estate. The regulator, however, delayed its plan to make changes to scrapping the rules.
Sebi proposed to allow companies to delist by exiting with a fixed price for the buyback of shares, instead of the existing reverse book-building mechanism where they decide on the price based on the sell orders submitted by shareholders.
“It (delisting proposal) was discussed in the board meeting. Our commitment to using data for policy making is such a strong commitment that the board directed us that because the number of delisting applications received over the last five years is small … the data set is very limited to draw a very significant conclusion,” Sebi Madhabi chairman Puri Buch said after the board meeting. “The board directed us to go back and do further examination of certain data and do further consultation with stakeholders so that we have a better sense. That’s the reason it wasn’t done this time.”
The Sebi board has approved setting up of small and medium real estate investment trusts (REITs), with an asset value of at least Rs 50 crore compared to Rs 500 crore for existing REITs.
Sebi said small and medium REITs would have the ability to create separate schemes to own real estate through special purpose vehicles constituted as companies. It said the existing structures could migrate, provided they meet certain criteria such as net worth, minimum unit ownership, minimum subscription, distribution and valuation rules.
The avenue would facilitate investment in mainly pre-leased real estate that earns the investors a rental yield, as well as participate in a potential increase in the value of such properties. The returns are distributed to the investors after management fees and other charges. “This growth-oriented initiative is poised to facilitate fractional ownership of real estate in a more organized and structured manner,” said Sumit Agrawal, partner, Regstreet Law Advisors.
T+0 Trade Settlement
Sebi also plans to allow T+0 settlement of trades – settlement on the same day of trade – by the end of this financial year. “We said we’re going to move optionally to one-hour settlement and then we’re going to move to instant. The market infrastructure and the brokers together came back and told us that the technology part that they have to take to get to instant settlement will be much better if the first step we take is not a one-hour settlement but a T+0,” Buch said.
“There is an intermediate step that has undergone change based on consultation. So, the suggestion has been that it will be faster and less expensive to move to T+0 and then move to immediate settlement rather than moving to one hour and then to immediate. Because that roadmap is working very well, we feel that the incremental benefit of putting an hour in the middle may not be there. So, we will move to T+0 and then to immediate.” The regulator also tweaked rules for index providers. It said the new framework would provide for registration of index providers who license relevant indices. “With the global and Indian financial sectors experiencing an increase in passive investment, the need for clear regulations on indices and index service providers has become apparent,” Agrawal of Regstreet Law Advisors said. “Sebi seems to have shifted its policy from regulating all indices to focusing on relevant ones. Indices vary in scope, ranging from broad and widely used to narrowly focused, including specialized ones tailored for specific users.”
