According to Crisil Ratings, recent rules for small and medium real estate investment trusts (SM REITs) established by the Securities and Exchange Board of India (SEBI) are anticipated to stimulate investor interest in fractional ownership of real estate assets. These restrictions are anticipated to increase the pool of potential investors by providing robust investor protection. The vehicle's popularity will still depend on careful operational risk management, though. Fractional ownership platforms (FOPs) have not adhered to standard operating procedures thus far. The aim of the SEBI action is to tackle this issue by including the current FOPs within the regulatory scope. Forced investments in operational assets, limitations on related party transactions, forced stock market registration, and the transfer of a minimum of 95% surplus from special purpose entities are a few of the main regulatory barriers. Mohit Makhija, senior director at CRISIL Ratings, stated that the regulations for SM REITs aim to bolster investor confidence by addressing two primary risks. Firstly, by restricting investments solely to completed projects, they aim to mitigate risks associated with project completion and leasing. Secondly, measures such as ring-fencing cash flows and mandatory quarterly distributions are expected to reduce the risk of fund diversion. Makhija further noted that these regulations should enhance transparency and governance standards. Additional regulations stipulate a minimum of 200 retail investors to ensure liquidity, along with liquidity requirements at the investment manager (IM) level to manage temporary mismatches. The eligibility criteria tied to experience for IMs are designed to promote robust governance. Anand Kulkarni, director at CRISIL Ratings, commented on the stringent nature of these regulations for SM REITs, highlighting the smaller scale of these schemes and the associated risks of higher asset or geographical concentration compared to traditional REITs. Kulkarni emphasised that the expertise of the IM in property selection and professional management will be crucial for the success of SM REITs. He also stressed the importance of lean cost structures to safeguard investor returns. Investing in SM REITs involves pooling funds from investors for fractional ownership of real estate assets under a trust structure, similar to traditional real estate ownership. Different schemes under the trust specify the assets to be invested in, allowing investors to choose schemes aligned with their investment preferences in specific micro-markets or asset types.