SEBI Proposes Major Reforms to Boost REIT and InvIT Marketability with EoDB Focus

SEBI Proposes Major Reforms to Boost REIT and InvIT Marketability with EoDB Focus​

SEBI has released a comprehensive Consultation Paper outlining several significant regulatory adjustments aimed at enhancing Ease of Doing Business (EoDB) for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The paper, which seeks public comments until August 27, 2026, introduces proposals ranging from allowing minority stakes in project development to redefining the standard for dissenting unitholders. These reforms are crucial steps toward fostering deeper capital markets participation in critical real estate and infrastructure assets across India.

Expanding Investment Scope: Allowing Minority Stakes in Projects​

One of the most pivotal proposed changes concerns limiting investment possibilities. Currently, regulations prohibit REITs and InvITs from investing in third-party projects without securing controlling interest, meaning majority ownership or board representation is required. Industry associations, including the Indian REITs Association (IRA) and Bharat InvITs Association (BIA), have argued for a more flexible approach during project development phases.

SEBI proposes amending regulations to allow REITs and InvITs to invest in under-construction projects without controlling interest, provided they remain within existing exposure limits. This shift aims to provide a strategic mechanism for long-term growth by enabling trusts to build up pipelines of stable, revenue-generating assets. These investments would be restricted to non-controlling stakes made directly at the REIT/InvIT level, rather than through SPV or Holdco structures.

Redefining Dissenting Unitholders and Exit Mechanisms​

The regulatory framework for handling changes in sponsors (Change in Control) has also been scrutinized. Existing regulations define 'dissenting unitholders' as anyone who did not vote in favour of the resolution, regardless of whether they participated in the meeting. Industry associations provided feedback that this definition is overly broad given the electronic voting options available to unitholders.

In response, SEBI proposes amending the definitions for both REITs and InvITs. The proposed change specifies that 'Dissenting unit holders' should include only those who have explicitly voted against the resolution proposed in terms of Regulation 22(5C) or Regulation 22(7). Furthermore, a binding agreement will be required between the REIT/InvIT and shareholders to ensure decisions align with the committed glide path.

Streamlining Unitholder Approval Thresholds​

The matter of unitholder approval thresholds has also been raised for review. Currently, several material decisions across both REITs and InvITs require a 75 per cent approval by value from all unit holders. Industry groups highlighted that securing this high threshold is challenging due to the diverse mix of stakeholders and low participation rates in voting.

SEBI's proposal, based on HYSAC recommendations, suggests changing the basis of approval for these resolutions. Instead of requiring a percentage of value, the resolution must achieve approval from unitholders where "votes cast in favour of the resolution shall be at least seventy five per cent of total votes cast for the resolution." This shift aligns with standard corporate governance practices under the Companies Act, 2013, facilitating smoother approval processes.

Recognizing Remote Infrastructure as Real Estate​

A specific inconsistency between the definitions of 'common infrastructure' and 'real estate' within REIT regulations has been highlighted by industry associations, particularly concerning captive renewable energy plants. The existing framework creates a "Catch-22" where remote common infrastructure—which is geographically distinct but functionally integrated with commercial real estate—cannot be recognized as 'real estate,' hindering the entity holding it from qualifying as an SPV.

To address this, SEBI proposes amending Regulation 2(zi) of the REIT Regulations. The amendment seeks to classify all common infrastructure, irrespective of co-location (i.e., whether it is remote or captive), as 'real estate.' This proposal also suggests omitting a separate investment enabler under Regulation 18(5)(k) as the direct classification would remove redundancy.

Reducing Cooling-Off Period for Private Listed InvITs​

The cooling-off period imposed on transactions involving privately listed InvITs has been reviewed due to inherent liquidity constraints. Current regulations apply equity-centric cooling-off timelines, which are often ill-suited for vehicles with high entry thresholds and limited institutional participation, such as those whose lot size is set at INR 25 lakhs.

Based on submissions from BIA and HYSAC recommendations, SEBI proposes reducing the cooling-off period for "illiquid" privately placed InvITs from 12 weeks to 8 weeks. This measure aims to facilitate easier market participation by addressing the structural liquidity limitations faced by these specialized investment vehicles.