What is Fractional Ownership SEBI Mulls Rules for FOP in Real Estate; Now you can also earn as a property partner! SEBI has made a big change, read full details Pipa News

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What is Fractional Ownership SEBI Mulls Rules for FOP in Real Estate; Now you can also earn as a property partner! SEBI has made a big change, read full details

Mumbai: Markets regulator Sebi has issued a new order to rein in the fast-growing fractional ownership platform (FOP). FOP is a platform that allows multiple people to own the same building. In such a situation, the regulator has now added a new chapter called MSM REITs in the REIT regulation to control the FOP. As per the current rules, MSM REITs must have a trustee, sponsor and investment manager whose roles are not mutually exclusive. In addition, the sponsor and investment manager should have assets of at least Rs 20 crore and Rs 10 crore respectively.

What is FOP?
Under this model investors are made part owners of building/office space (including warehouses, shopping centres). In this, the property purchase price is divided among different investors, with a minimum investment of Rs 10-25 lakh. These buyers invest in securities issued by a Special Purpose Vehicle (SPV) set up by the FOP. In return, this special purpose vehicle purchases real estate assets.

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Investors earn from both rental returns and capital gains (on the sale of the building). These platforms charge 3-5% at the time of entry and 1% annually.

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Higher earnings than FD
The promoters of this platform say that the rental yield here can be as high as 8-9%, so experts say that returns are expected to be higher than fixed deposits. As this investment is made in a ready-made building, there is no risk of development or approval. Along with this, there is no risk of the space remaining vacant as tenants are already ready to occupy it.

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What worries SEBI
In the absence of standard and uniform sales practices and lack of independent valuation, investors may fall prey to unfair sales, Sebi emphasized in its paper. As such, it is clear that many FOPs are registered as real estate agents or brokers, which fall under the ambit of the Real Estate Regulatory Authority i.e. RERA. So it is not clear whether everyone actually follows the rules and whether all provisions apply to online platforms.

The Real Estate Act came into force

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