SEBI Flags Investor Caution as Strata Exits SM REIT Framework Amid Legal Scrutiny

The Small and Medium Real Estate Investment Trust (SM REIT) framework is a relatively new initiative by the Securities and Exchange Board of India (SEBI), introduced in 2024. It was designed to regulate fractional ownership platforms that allow investors to pool funds and invest in real estate assets, thereby formalising the space and enhancing transparency and investor protection.

Unlike traditional REITs that deal with large-scale commercial assets, SM REITs can include residential or commercial properties with a minimum value of ₹50 crore. The minimum investment requirement is ₹10 lakh, aimed at attracting sophisticated investors while curbing retail speculation.

Strata’s Role and Exit from the Framework

Strata, a commercial real estate investment platform co-founded by Sudarshan Lodha and Priyanka Rathore, was among the first to receive SEBI’s approval under the SM REIT category in January 2025. It had announced plans to launch 6 schemes in FY26 but did not initiate any scheme or transition existing fractional ownership models into the SM REIT structure.

Following a series of legal proceedings involving the company’s promoters, SEBI engaged with various stakeholders within Strata including its independent director, compliance officers, and trustee before the platform formally surrendered its registration.

Read More: SEBI to Review and Finalise Regulatory Framework for F&O on May 7.

SEBI's Investor Advisory

SEBI has issued a public caution, advising investors that Strata SM REIT is no longer a SEBI-regulated entity and must not present itself as such. The market regulator’s move is intended to ensure that investors are not misled by any representations suggesting regulatory compliance under the SM REIT framework.

The regulatory body reiterated that Strata’s certificate of registration has been officially surrendered and the entity will no longer be permitted to operate or market itself as an SM REIT intermediary.

AUM and Industry Implications

Despite its withdrawal, Strata continues to manage assets worth over ₹2,000 crore, although these are no longer under the SM REIT regulatory umbrella. This development raises broader concerns about the transition of fractional ownership platforms into a formalised structure and highlights the regulatory challenges faced during implementation.

The episode underscores SEBI’s intent to enforce strict compliance and legal accountability within the emerging real estate investment ecosystem, even as it seeks to bring greater inclusivity and structure to the market.

Key Features of the SM REIT Guidelines

• Asset Type: Commercial and residential properties worth a minimum of ₹50 crore.
• Minimum Investment: ₹10 lakh per investor.
• Sponsor Requirements: Mandatory vested interest (‘skin in the game’) to align incentives.
• Leverage Limits: Defined caps to prevent overleveraging of real estate portfolios.

These measures aim to balance investor access with sufficient safeguards in a sector that was previously outside direct regulatory oversight.

Conclusion

The exit of Strata from the SM REIT framework serves as a reminder of the rigorous compliance requirements that come with regulatory approval. It also signals SEBI’s ongoing commitment to protect investor interests while bringing innovation-led financial products under formal governance.

As the SM REIT landscape evolves, more clarity and stricter enforcement are expected, shaping the future of fractional real estate investing in India.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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