SEBI’s Leap: Elevating Investor Trust in Fractional Ownership & Delisting

Housing Society Law

Posted by Abha Singh on 01 Mar 24

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Introduction:

The Securities and Exchange Board of India (SEBI) is prepared for an extremely important meeting, which is planned regarding the proposals for regulating the investment system supplying fractional ownership of real state property. At the same time, the Security and Exchange Board of India is planning to inspect the old rules for delisting stocks at its next board meeting which is going to take place on 25th of November 2023. SEBI is also planning to give some other options for the reverse book-building process, and there is a thought that they may consider delisting the shares at fixed prices. The paper which came out after a discussion, in August suggested that the fixed price route will give certainty to the shareholders regarding the pricing of the delisting offer. This would also help the shareholders in making a thought process about whether they want to participate in the delisting process or not. SEBI’s chief emphasised the point that the capital formation process depends on belief clarity and growth, the role of SEBI is to bring that belief into the system. 

What Is Fractional Ownership?

A percentage of an asset is called fractional ownership. Individual shareholders purchase fractional ownership shares in the asset, which entitles them to usage rights, income sharing, priority access, and discounted rates.

 Role of SEBI in fractional ownership in real estate property:

 Fractional possession is an investment model in which individuals mutually gather and pool into a real estate asset. Typically focused on pre-leased houses, traders stand to advantage returns through condo yields and price appreciation. However, SEBI has recognized concerns concerning the shortage of transparency in tactics related to unlisted securities connected to fractional investments, leaving buyers with limited exit options. The proposed regulations aim to set up a tough framework, safeguarding investor pursuits, fostering transparency, and raising enterprise standards.

 SEBI’s scrutiny of systems offering fractional possession aligns with its overarching dedication to investor protection. Addressing issues approximately unlisted securities and exit strategies, SEBI seeks to inculcate confidence in investors participating in those platforms. The regulatory measures are predicted to catalyse an effective transformation, ensuring the enterprise evolves right into a transparent, responsible, and investor-friendly community.

 Expert Opinion:

 Renowned counsel Aditya Pratap, founder OF Aditya Pratap Law Offices, praises SEBI’s approval as a move in the right direction in today’s hectic environment. Making comparisons to the Real Estate (Regulation and Development) Act (RERA), he highlights how important regulatory actions are to restoring equilibrium and consensus in the industry. Mr Pratap is upbeat and hopes that a RERA-like regulatory framework will strengthen the fractional ownership market and give purchasers a predictable and safe experience.

Delisting Rule Reforms:

 Along with addressing fractional possession, SEBI contemplates giant modifications to the delisting regulations. The contemporary procedure includes a reverse book mechanism, wherein shareholders recommend the price at which they are inclined to provide their stocks for buyback. Identifying a capability loophole in this system, SEBI notes times in which operators hoard corporation shares during a delisting statement, developing challenges for corporations in search of going private. To counter this, SEBI explores a set-rate delisting mechanism, with the caveat that this selection would be available completely to corporations with frequently traded stocks.

 Challenges and Prospects:

 While the proposed delisting mechanism aims to cope with marketplace vulnerabilities, issues persist concerning capacity loopholes. Questions about the mechanism’s effectiveness and capability misuse underscore the need for sensitive stability between facilitating delisting and preventing market manipulation. Striking this stability will be vital for the success of this regulatory initiative.

 Striking a Balance for Investor Confidence:

 In navigating the complexities of these regulatory adjustments, the overarching purpose is to strike a delicate stability that fosters investor confidence. The pass toward regulating fractional ownership structures displays SEBI’s proactive stance in aligning the economic market with evolving investor expectancies. By addressing transparency troubles and exit strategies, SEBI pursues to not only protect traders but also to nurture a sustainable and sincere investment ecosystem.

Transparent guidelines are the bedrock of a thriving financial market. SEBI’s dedication to transparency inside the fractional possession quarter indicates a maturing regulatory technique that recognizes the evolving dynamics of present-day investment practices. Transparent rules offer readability, reduce uncertainties, and instil belief among traders, growing an environment conducive to long-term growth.

 The Evolving Landscape of Indian Investments:

 SEBI’s proposed rules come at a time when the Indian investment panorama is undergoing huge shifts. As the market diversifies and embraces revolutionary funding fashions, regulatory frameworks should evolve in tandem. The fractional possession model, whilst offering particular possibilities, also poses challenges that necessitate a proactive regulatory technique. SEBI’s initiative reflects its adaptability to converting market dynamics. At the end, SEBI’s upcoming assembly symbolizes a pivotal second within the trajectory of Indian economic rules. The proposed regulations, if implemented thoughtfully, have the capacity to reshape the fractional possession landscape and beef up investor protection. 

Conclusion:

SEBI has proposed regulations to address transparency issues in fractional ownership investments, aiming to create a strong framework for investor protection and raise enterprise standards. The regulations also include changes to delisting rules, aiming to address potential loopholes and ensure market stability. The proposed rules aim to foster investor confidence and promote a sustainable investment ecosystem. The proposed regulations align with the evolving landscape of Indian investments, as the market diversifies and adopts new funding models. Implementing these regulations could significantly reshape the fractional ownership landscape and improve investor protection.

Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured . Views expressed are personal.

This article has been assisted by Aabhas Jindal, a 5th-semester LLB Hons. student from Maa Vaishno Devi Law College.