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India’s markets regulator is considering opening up real estate investment trusts (REITs) to small investors by gradually lowering the minimum trading lot size of REIT units from 50,000 to the value of just a single unit, much like how stocks are traded.

The move is aimed at improving liquidity for investors in REITs, two people with direct knowledge of Securities and Exchange Board of India’s (Sebi’s) plans said on condition of anonymity.

“Sebi is considering a plan to gradually make REITs trading akin to share trading. This will help grow the market as it will channelize household investments into commercial realty," said one of the two people.

Embassy Office Parks REIT is currently the only such listed trust in India. On Tuesday, the company’s REIT was trading at 341 per unit on BSE. The company’s total market value is around 26,245 crore but there is no free-float market cap because REIT units are not freely tradable, which will change once Sebi relaxes the rules and allows small investors to buy and sell REIT units on exchanges without any minimum lot size restrictions or perhaps in small affordable lot sizes.

Sebi’s proposal is in line with global practices where even a single REIT unit can be traded.

Though Sebi allowed listing of REITs in 2016, so far, Embassy REIT is the only listed entity.

Despite subdued equity markets, Embassy REIT fetched a return of 25% over the last one year, which explains the growing popularity of REITs and the reason why Sebi is now planning to allow retail investors to enter REITs market.

“Embassy REIT distributed 18.8 billion to investors for its first year as a listed REIT. That is a dividend yield of 8.1%," said a person close to Blackstone.

Last week, Blackstone reduced its holding in Embassy REIT. Blackstone had proposed to sell down $250 million but ended up selling $300 million as the demand for REIT was high.

K Raheja Corp. sponsored Mindspace Business Parks REIT is planning to sell 1,000 crore worth of REIT units through an initial public offering soon and has already filed documents with Sebi.

To be sure, Sebi wants to go slow on easing REIT norms.

“Sebi wants more REITs to list before opening it up to retail investors. It is still an instrument meant for more savvy investors. One REIT experience may not be enough for a proper assessment of governance and reporting," said a person familiar with the regulator’s thinking, the second person cited above.

In the past few weeks, several potential REIT issuers have met Sebi to discuss ways to open up the REIT market.

“Sebi is in receipt of the representation from some industry participants and is considering it. The regulator wants the REIT market to grow but can’t compromise on safety of investors," he added.

REITs invest in commercial real estate. They earn rental income from their holdings, which is passed on to investors.

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