Fractional Commercial Real Estate for NRIs: How SEBI's SM REIT Framework Works, the Rs 10 Lakh Minimum, and Whether It Beats a Physical Flat

A reader in Dubai wrote to me last year asking whether he should put Rs 60 lakh into a Bengaluru office floor through one of the fractional ownership platforms he kept seeing advertised on LinkedIn. The pitch was seductive: a 9% rental yield from a Grade A building leased to a US tech firm, against the 5.5% he was getting from a listed REIT and the 2.5% to 3% net yield his uncle complained about on an actual rented flat in Pune. He almost wired the money. What stopped him was a simple question he could not answer: if the platform vanished, what exactly did he own?

The 30-second answer: NRIs can now invest in fractional commercial real estate in India through SEBI's SM REIT framework, notified in March 2024, which converted the previously unregulated fractional ownership platforms into a regulated, exchange-listed structure. The minimum subscription is Rs 10 lakh per unit, each scheme owns an asset worth Rs 50 crore to Rs 500 crore, and yields run around 8.5% to 9%, well above listed REITs at roughly 5.5% to 7%. You invest through a demat account from an NRE account for full repatriation, distributions are taxed component by component under Section 115UA with 5% TDS on the interest portion, and capital gains are 12.5% long-term. It is real and regulated now, but it is one building of concentration risk, and the secondary market is thin.

This guide assumes you already understand how listed REITs work and how NRI repatriation and the NRE/NRO distinction operate; if not, start with the REITs and InvITs guide. What follows is the part that is genuinely new: how SEBI rebuilt the fractional ownership industry in 2024, what the Rs 10 lakh ticket actually buys you, how the income is sliced for tax, and the honest comparison of an SM REIT against a listed REIT and a physical flat with the arithmetic laid out.

What SEBI actually did in 2024, and why it matters

Before March 2024, fractional ownership of commercial property in India ran through platforms that pooled investor money into a special purpose vehicle, an SPV, which bought a building. You held shares or compulsorily convertible debentures in that SPV. The platform managed the asset and distributed the rent. There were perhaps a dozen of these, holding an estimated Rs 4,000 crore of assets, and they operated in a regulatory grey zone. There was no mandated disclosure, no independent valuation cadence, no rule on how much debt a scheme could pile on, and crucially no clean answer to what happens to your money if the platform's management company goes under.

SEBI closed that gap with the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024, notified on 8 March 2024, creating a new sub-category called Small and Medium REITs (SM REITs). The framework is explicit that it is meant to bring fractional ownership platforms into the regulated fold. Existing platforms were given the option to migrate their assets into SM REIT schemes or wind down. The practical effect for an NRI is that the question that stopped my Dubai reader, what do I actually own, now has an answer: you own listed, dematerialised units in a trust whose assets, valuation, leverage and distributions are all governed by SEBI rules and audited.

The structure is worth understanding because it differs from a regular REIT in ways that change the risk. A regular listed REIT like Embassy or Mindspace is a single large trust holding a diversified portfolio of dozens of buildings across cities. An SM REIT is a trust that can launch multiple separate schemes, and each scheme typically holds one asset or a small cluster. You do not buy the trust; you buy units in a specific scheme tied to a specific building. So PropShare Platina, the first scheme launched under this framework in December 2024, is roughly 247,000 square feet in one LEED Gold building on Bengaluru's Outer Ring Road, leased to a single US tech tenant. Your yield and your risk are the yield and risk of that one building and that one lease, not of a diversified national portfolio.

The Rs 10 lakh minimum is a feature, not an accident

The headline number every NRI asks about is the Rs 10 lakh minimum subscription per unit at the initial offer. SEBI set this deliberately high. A listed Embassy or Nexus unit costs a few hundred rupees, accessible to anyone with a demat account. SEBI did not want SM REITs to be a retail mass product, because a single-building scheme carries concentration risk that a small saver should not take blind. The Rs 10 lakh floor screens for investors who can absorb the loss of a tenant or a soft leasing market on one asset.

Around that floor sits a specific set of guardrails worth knowing before you commit, because they are what separate a regulated SM REIT from the old platforms. Each scheme must raise a minimum of Rs 50 crore from at least 200 investors, and the underlying asset must be valued between Rs 50 crore and Rs 500 crore, which is the band that gives "small and medium" its name. At least 95% of the scheme's assets must be in completed, revenue-generating property; SM REITs cannot speculate on under-construction projects, which is the single biggest reason the old fractional model produced disasters. The investment manager must have a net worth of at least Rs 20 crore and either two years of relevant experience or a key person with five years in real estate.

The leverage rule is the one I would read twice. A scheme can be structured with or without leverage. An unleveraged scheme carries no debt, and the investment manager must hold at least 5% of the units, skin in the game. A leveraged scheme can borrow up to 49% of scheme assets, but borrowing above 25% needs a credit rating and unit-holder approval, and the manager must hold 15% of the units. As an NRI, treat leverage as a yield amplifier in both directions: a 9% headline yield on a scheme borrowing 40% of its value is a riskier 9% than the same yield on a zero-debt scheme, because a vacancy still has to service the loan. Always check which structure you are buying before the yield seduces you.

How an NRI actually invests, and the repatriation mechanics

This is the part where SM REITs are refreshingly boring, which is exactly what you want. Because SM REIT units are listed and traded on the NSE and BSE, an NRI buys them through the same machinery used for listed shares and listed REITs: a demat account, a trading account, and a bank account on the PIS or non-PIS route, funded from your NRE or NRO account. There is no separate FEMA approval, no special property-purchase route, no Reserve Bank application. If you can buy Reliance shares as an NRI, you can buy SM REIT units.

The choice that matters is which account you fund the investment from, because it decides your repatriation rights for the life of the holding. Fund the subscription from your NRE account and both the distributions and the eventual sale proceeds are fully and freely repatriable, with no cap and no chartered accountant certificate needed for the principal. Fund it from your NRO account and the proceeds are repatriable only within the USD 1 million per financial year ceiling that applies across all your NRO balances, and each repatriation needs Form 15CA and 15CB certification. For a single Rs 10 lakh unit the NRO cap is rarely a constraint, but if you are buying three or four units, Rs 30 to 40 lakh, alongside other NRO repatriation in the same year, the cap can bite. The honest default for most NRIs building this position fresh is to route it through the NRE account and keep the repatriation headroom unencumbered. The full mechanics sit in the repatriation rules guide, and the same NRE-versus-NRO logic that governs rental income applies here, covered in tax on Indian rental income.

One genuine wrinkle: the US and Canada PFIC and reporting overhead that complicates Indian mutual funds for those NRIs applies to SM REIT units too, since a foreign trust generating passive income can be a passive foreign investment company in US hands. A UAE or UK NRI has no such overlay. A US NRI should price in the cost of the extra filing before deciding the yield is worth it.

The distribution is sliced for tax, and the slices are not equal

This is where most write-ups go wrong, including some of the platforms' own marketing. You will read that "SM REIT rental income is returned as capital and is therefore tax-free." That is a half-truth that can cost you a notice. The reality is governed by Section 115UA, the pass-through regime that taxes the trust's income in the unit-holder's hands, and the distribution arrives in components, each taxed differently.

A typical SM REIT distribution has up to three parts. The interest the SPV pays up to the trust on its shareholder loan is taxable in your hands at your slab rate, with 5% TDS for non-residents deducted under Section 194LBA (against 10% for residents), reducible further under your DTAA with a Tax Residency Certificate and Form 10F. The dividend component is taxable at slab rate if the SPV has opted into the concessional corporate tax regime under Section 115BAA, which most have. The rental income distributed directly, where the trust holds the property rather than through an SPV, is taxable at slab rates. And the portion that is genuinely a return of capital, the amortisation of the SPV loan, is not taxed when you receive it; instead it reduces your cost of acquisition, so it surfaces later as a larger capital gain when you sell. That is the kernel of truth behind the "tax-free" claim: part of the payout is not taxed on receipt, but it is not free, it is deferred.

So the effective tax on a 9% pre-tax distribution depends entirely on the split between interest, dividend and capital return in your specific scheme, which the trust must disclose to you each year. A scheme heavy on the capital-return component is genuinely more tax-efficient for a low-bracket NRI; a scheme paying mostly interest is taxed close to your slab rate. Do not take the headline yield as your after-tax yield. The general mechanics of business-trust taxation, including the listed REIT version, are in REITs and InvITs for NRIs.

On exit, the capital gain on selling the units follows the standard listed-security rules after the Finance Act changes: units held 12 months or less are short-term at 20%, and units held longer are long-term at 12.5% on gains above Rs 1.25 lakh a year, with no indexation. The Budget 2025 amendments aligned SM REIT and listed REIT unit treatment, reducing the long-term holding period to 12 months and confirming the 12.5% rate from AY 2026-27. The capital gains rules that apply to your other listed holdings, including the surcharge cap and the basic-exemption trap that hits NRIs, carry over here too.

Yield versus a listed REIT versus a flat: the number that actually decides it

Here is the comparison the Dubai reader needed and could not find cleanly. Put Rs 50 lakh into each of the three routes and follow the cash.

Feature	SM REIT scheme	Listed REIT (Embassy/Nexus)	Physical flat (let out)
Minimum to enter	Rs 10 lakh per unit	A few hundred rupees	Rs 50 lakh to Rs 2 crore-plus
Typical gross yield	8.5% to 9%	5.5% to 7%	6% to 9% gross, 2.5% to 3.5% net
Diversification	One building, one lease	Dozens of buildings	One unit, total concentration
Liquidity	Thin secondary market	Daily exchange liquidity	Months to sell
Management effort	None	None	High (tenants, repairs, society)
Repatriation	Clean via NRE	Clean via NRE	Sale proceeds capped, TDS heavy
Regulation	SEBI, since March 2024	SEBI, mature	None on the asset itself

Now put real money on the SM REIT versus listed REIT line. A UAE-resident NRI invests Rs 50 lakh in PropShare-style SM REIT units yielding a projected 9% pre-tax, which is Rs 4,50,000 a year. Assume the distribution is split, as these schemes often are, roughly 70% interest and 30% return of capital. The interest portion of Rs 3,15,000 is taxable at slab, but because she is a UAE resident with little other Indian income, much of it sits in the lower slabs; say an effective 15% after using the basic exemption and the lower slabs, costing about Rs 47,000, with 5% TDS of Rs 15,750 already withheld and the rest settled or refunded on filing. The Rs 1,35,000 return-of-capital portion is untaxed on receipt. Her after-tax cash yield is roughly Rs 4,03,000, about 8.06%.

Compare the identical Rs 50 lakh in a listed REIT yielding 6% pre-tax, which is Rs 3,00,000. Listed REITs distribute a similar interest-heavy mix; assume the same effective 15% on the taxable portion costs about Rs 32,000. Her after-tax cash yield is roughly Rs 2,68,000, about 5.36%. The SM REIT delivers about Rs 1,35,000 more cash per year on the same Rs 50 lakh, a difference of roughly 2.7 percentage points after tax. That gap is the entire reason SM REITs exist, and it is real. What you are paid that extra 2.7% to bear is concentration and illiquidity: one tenant's lease, and a secondary market where, if you need to exit in a hurry, you may not find a buyer at fair value.

Now the flat, which most NRIs over-rate. The same reader buys a Rs 50 lakh share of a residential property in Pune. The gross rent might be Rs 3,00,000 (6%), but after the 30% standard deduction, property tax, society maintenance, periodic vacancy, brokerage on re-letting and repairs, the net yield collapses to about 2.5% to 3%, call it Rs 1,40,000, before the slab tax on the net rental income and the 31.2% TDS the tenant or buyer may over-withhold. After tax the net cash is often under Rs 1,20,000, around 2.4%. The flat's case has never been the yield; it is the hope of capital appreciation and the emotional pull of owning bricks. On pure income, the SM REIT delivers more than three times the after-tax cash of the flat, with no tenant calls at 2 am and clean repatriation. The detailed flat-versus-REIT yield arithmetic, including why the net number is so much lower than the gross, is in rental yield versus REIT.

Edge cases

The secondary market is thin, and that is the real risk, not the regulation. SEBI fixed the structural risk; it cannot manufacture liquidity. There are only a handful of SM REIT schemes listed as of early 2026, and daily traded volumes are low. If you subscribe at the IPO and need to sell two years later, you may find the bid well below the last quoted price simply because few buyers are active that day. Treat an SM REIT as a hold-to-yield instrument, not a trade. If you might need the Rs 10 lakh back on short notice, a listed REIT with daily liquidity is the safer home.

Single-tenant lease expiry is the event to model. Because a scheme is often one building leased to one tenant, the whole distribution rests on that lease. Read the weighted average lock-in and the escalation terms before you subscribe. PropShare Platina, for instance, was structured with a fresh nine-year lease, a 4.6-year weighted average lock-in and 15% rent escalation every three years. A scheme with a lease expiring in eighteen months and no renewal commitment is a different animal at the same yield.

The old platforms have not all converted cleanly. Some pre-2024 fractional ownership arrangements are still being migrated, restructured or wound down. If you hold units in a platform that has not registered as an SM REIT, you are still in the unregulated structure, with none of the SEBI protections. Confirm, in writing, that the scheme you are buying is a SEBI-registered SM REIT scheme with a registration number, not a legacy SPV co-ownership deal dressed up in the new language.

The "tax-free distribution" claim deserves a CA's eye on a large position. The return-of-capital component is deferral, not exemption, and the Finance Act 2023 change under Section 56(2)(xii) brought certain repayment-of-debt distributions into the tax net. On a Rs 50 lakh-plus position the difference between the marketing version and the actual computation can be several lakh over the holding period. Have your scheme's annual tax statement read by a chartered accountant rather than trusting the brochure.

The closing read

The honest read is that SEBI's SM REIT framework took a genuinely useful idea, fractional access to institutional-grade commercial property, and finally wrapped it in regulation that makes it safe enough for a serious NRI to consider. The 8.5% to 9% yield is real, it is meaningfully above listed REITs, and the repatriation and tax mechanics are clean if you route through your NRE account and read your distribution split honestly. For an NRI who wants Indian commercial real estate exposure, has at least Rs 10 lakh per scheme to commit, and can hold for years rather than months, an SM REIT now beats both a physical flat (on yield, effort and liquidity) and a listed REIT (on yield, at the cost of concentration).

So for most NRIs in this position: prefer a diversified spread across two or three SM REIT schemes over a single Rs 30 lakh bet on one building, favour unleveraged or low-leverage schemes with a long lease lock-in, and fund from your NRE account to keep repatriation unrestricted. Keep SM REITs as a yield sleeve inside a balanced portfolio, not the whole real estate allocation; the right framing for that is in portfolio asset allocation. The exception who should stay away is the NRI who might need the money back inside two years, where the thin secondary market makes a listed REIT or a debt fund the wiser home, and the US-resident NRI who should price the PFIC reporting cost into the decision before subscribing. And as ever, on a position above Rs 25 lakh, the tax split is worth a CA's hour, not a blog's word, this one included.

Related guides

• REITs and InvITs for NRIs
• Rental yield versus REIT for NRIs
• Buying property in India as an NRI
• NRI portfolio asset allocation
• Tax on Indian rental income for NRIs
• All Investments guides
• All Taxation guides

This guide is educational and general in nature. It is not individual investment or tax advice. SM REITs are a new instrument under regulations notified in March 2024, the schemes available and their terms change, the secondary market is thin, and the tax treatment of each distribution component depends on your scheme's structure and your residency and treaty. Confirm your specific position and the registration status of any scheme with a qualified chartered accountant and a SEBI-registered intermediary before you invest.