India: SEBI Further Liberalizes The REITs Regime

  • Allows REITs to borrow by issuance of debt securities
  • Allows REITs to lend to holdco/SPVs
  • Ability to list single asset
  • Introduction of strategic investors

Securities Exchange Board of India ("SEBI") notified the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 on September 26, 2014 ("REIT Regs"). At the time of the notification of the REIT Regs, it was stated that the Real Estate Investment Trusts ("REITs") will change dynamics of the real estate sector in India as (a) it will provide a platform to the real estate developers and investors with core assets to monetize the same; (b) provide an alternative platform to the investors to invest in the real estate without being exposed to plethora of issues which surround real estate sector in India; and (c) also bring higher standards of transparency and governance in the way real estate developers managed their assets.

It has been three years since the REIT Regs were notified, but REITs have not taken off in India. It was on account of multiple regulatory and tax related issues that REIT regime did not take off in India. However, since 2014, SEBI and the government has ironed out those issues, but only one developer backed by one of the largest private equity player in the world has registered REIT with SEBI, but there is no clarity when will the public issue be launched and units of the REITs will be listed on a recognized stock exchange in India.

In order to further liberalize the regime for the REITs, SEBI in its board meeting dated September 18, 2017 ("SEBI Board Meeting") has made the following tweaks in the REIT Regs.

  1. Proposal: Allowing REITs to raise debt capital by issuing debt securities


    Currently, a REIT can raise debt by way of borrowing other than by way of issuance of debt securities. This is because debt instruments issued by REIT would not qualify as a 'security' under the Securities Contracts (Regulation) Act, 1956. Hence, debt investments from entities such as AIF, FPI and FVCI were not permitted in REITs, since such entities could only invest in securities and not lend in any other manner.


    a. SEBI, Central Government and RBI will need to make necessary amendments in the SCRA, Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 etc. in order to facilitate the debt investments in REITs.

    b. Substantial pool of investment avenues can now be tapped by a REIT.

    c. Since banks were restricted under prudential norms in terms of exposure to commercial real estate, an important domestic source of funding was not fully available to REITs. Pension funds and insurance companies typically are primary source of funding, but they are also substantially limited in their ability to invest in REITs. Hence, there was a need to provide REITs with the ability to raise funds in order to meet capital requirements from time to time, which may now be possible based on SEBI's proposal. Please click here for our analysis on the funding by banks, pension funds and insurance companies to REITs.

  2. Proposal: Allowing REITs to lend to underlying holdco1/SPV2


    Though the REIT Regs at several places permitted REITs to invest as debt, however, a close reading of regulation 18 sub-regulation (13) of REIT Regs manifest that such investments in debt should be in the form of debt securities as lending by a REIT is prohibited.


    a. It appears that SEBI has allowed REITs with the flexibility to advance loans to the holdco/SPVs, which technically is not available as of date.

    b. This will allow REITs to lend to non-corporate entities such as LLPs, partnerships etc. which was not otherwise possible as the debt securities can only be issued by a body corporate.

  3. Proposal: Introducing the concept of strategic investor3 for REITs on similar lines of infrastructure investment trusts


    Even though the regulatory framework for the REITs and infrastructure investment trust is quite similar, there are few differences in their regulatory framework; one of them is that certain institutional investors i.e. strategic investors are permitted to invest in the units issued by infrastructure investment trusts in preference to the general public at the time of the public issuance, which is currently not permitted under the REIT Regs. Such issuance of the units to strategic investors act as a safeguard to the issuer by minimizing the risk of undersubscription of the units. The two infrastructure investment trusts which have gone public had utilized this provision and had issued units to strategic investors.


    a. Introduction of 'strategic investor' may help REITs to raise money by mitigating the risk of relying only on public to subscribe to the units as REITs can only undertake public issuance of units for listing of such units on the recognized stock exchange and is not permitted to undertake preferential allotment to specific investors.

    b. Accordingly, the requirement of having disperse unit holders can also be eased to the extent of issuance of units to strategic investors, which may be of comfort for the sponsor who are considering listing their assets.

  4. Proposal: Allowing single asset in a REIT

    Currently under the REIT Regs, a REIT should have minimum 2 (two) assets which cumulatively should be more than INR 500 crores (Rupees Five Hundred Crores) in value. Such diversification requirement was mandated with a view to assuage asset specific risk that may occur in certain pockets due to tenancy shortfall or other issues. However, the limited availability of Grade A fully tenanted assets that could be rolled into a REIT was becoming a challenge for many sponsors, particularly in light of limited interest from the investors. Hence, there was an industry request to do away with the diversification requirements to give the necessary support to the fledgling REIT regime, which seems to have been accepted by the SEBI.

  5. Proposal: Amending the definition of valuer for REITs

    SEBI Board Meeting also proposes to amend the definition of valuer who is entrusted with the responsibility of undertaking the periodical valuation of the assets. However, the press release of the SEBI Board Meeting does not set out changes that will be made in the definition.

  6. Proposal under deliberation: The Board, after deliberations, decided to have further consultation with the stakeholders on a proposal of allowing REITs to invest at least 50% of the equity share capital or interest in the underlying Holdco/SPVs, and similarly allowing Holdco to invest with at least 50% of the equity share capital or interest in the underlying SPVs.


    In 2014, when REIT Regs were originally notified, it mentioned that SPV means any company or LLP in which the REIT holds or proposes to hold controlling interest and not less than 50% (fifty percent) of the equity share capital or interest. However, this underwent a change in 2016 when SEBI extensively amended the REIT Regs, pursuant to the amendment SPV now means any company or LLP in which either the REIT or the holdco holds or proposes to hold controlling interest and not less than 51% (fifty one percent) of the equity share capital or interest. Further, amendments also provided for a definition of a holdco which provided for similar test i.e. holding or proposing to hold controlling interest and not less than 51% (fifty one percent) of the equity share capital or interest.


    a. Ideally, threshold for shareholding and interest in holdco/SPVs should be 51% (fifty one percent) and not 50% (fifty percent) in order to eliminate any potential conflict between the shareholders as a shareholder with a substantial shareholding of 50% (fifty percent) can create operational issues whereas, a shareholder with a majority shareholding of 51% (fifty one percent) enjoys lot of power in terms of the decision making under Companies Act, 2013.

    b. Further, it remains to be seen whether SEBI will retain the 'controlling interest' test for the investment by REIT in the holdco/SPV as the test provides additional safeguard to REITs.

    Whilst the exact text in relation to the above mentioned proposal remains to be seen, it is fair to say that SEBI has made another honest attempt to encourage REITs which have still not taken off. Changes proposed by SEBI are positive in nature and should enable more movement in this sector and titillate the industry players to list their assets and monetize their assets.

For the better and comprehensive understanding of the REIT regime, please refer Economic Times, LiveMint_Opinion, LiveMint_Money.


1 Under REIT Regs, "holdco" means a company or LLP:

(i) in which REIT holds or proposes to hold controlling interest and not less than fifty one per cent. of the equity share capital or interest and which it in turn has made investments in other SPV(s), which ultimately hold the property(ies);

(ii) which is not engaged in any other activity other than holding of the underlying SPV(s), holding of real estate/properties and any other activities pertaining to and incidental to such holdings.

2 Under REIT Regs, "SPV" means a company or LLP:

(i) in which either the REIT or the holdco holds or proposes to hold controlling interest and not less than fifty one per cent. of the equity share capital or interest;

(ii) which holds not less than eighty per cent. of its assets directly in properties and does not invest in other special purpose vehicles; and

(iii) which is not engaged in any activity other than holding and developing property and any other activity incidental to such holding or development;

3 "strategic investor" under Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 means –

a) an infrastructure finance company registered with Reserve Bank of India as a Non-Banking Financial Company;

b) a Scheduled Commercial Bank;

c) an international multilateral financial institution;

d) a systemically important Non-Banking Financial Companies registered with Reserve Bank of India;

e) a foreign portfolio investors,

who together invest not less than five per cent of the total offer size of the InvIT or such amount as may be specified by the Board from time to time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ruchir Sinha
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions