Bridging the Gaps: SEBI’s Bold Blueprint for India’s REIT and InvIT Future

[Jainam and Tanay are students at Gujarat National Law University.]

In the intricate landscape of Indian financial markets, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) have emerged as primary means of mobilizing long-term capital to real estate and infrastructure industries. However, since their introduction in 2014, these instruments have been governed by a framework marked by inconsistencies and operational contradictions. The Securities and Exchange Board of India (SEBI), in its consultation paper dated 2 May 2025, has served up a buffet of 7 proposals that might just satisfy the market’s hunger for clarity and consistency. 

In view of the ongoing ‘ease of doing business’ campaign in India, this paper is a watershed moment for these industries, which aims to deepen these markets by making them more accessible, transparent, business- friendly as well as investor-friendly. This article examines and analyzes SEBI’s consultation paper and the proposals within, focusing on the rationale behind each amendment. Further, it also discusses the potential impact of these proposals on the market and the stakeholder, if in case the proposals are successfully implemented.

Breaking Down SEBI’s Seven Key Proposals

SEBI, in its consultation paper dated 2 May 2025, has released 7 key proposals which aim to further provide clarity to stakeholders in the REITS and InvITs market. The key proposals are as follows:

Clarifying the definition of “public” in minimum unitholding requirement

Currently, SEBI regulations on REITs and InvITs define ‘public’ as ‘any person other than a related party of the REIT/InvIT or any other person as specified by the Board’ with an exception that related-party QIBs are counted as public. However, Regulation 14(2A) of REIT regulations / Regulation 14(1A) of InvIT regulations separately exclude units held by the sponsor, manager, their related parties or their associates from the definition of ‘public’ while counting minimum public unitholding, which led to inconsistencies and confusion. Hence, SEBI proposes to amend the definition of ‘public’ so as to exclude both ‘related parties’ and ‘parties to related-parties’ from the definition of ‘public’, with QIBs exception still intact. Further, since the definition will be clarified, SEBI also proposes to delete the overlapping Regulation 14(2A)/14(1A) altogether.

Addition of an exception of ‘negative cash flow’ in form of a proviso to Regulation 18(16)(aa)(i) of REIT Regulations/Regulation 18(6)(ba)(i) of InvIT Regulations

Under the current regime, a holding company (Holdco) must give 100% of cash flows received from underlying special purpose vehicles (SPVs) to the REIT/InvIT. However, the issue lies when the Holdco has a negative cash flow while maintaining a positive cash flow from SPVs. In such a case, if the Holdco has used inflows received from SPVs to meet its own outflows, then it cannot distribute 100% of the inflows received from SPVs. Hence, it is proposed by SEBI to add a proviso to the regulations allowing the Holdco to distribute only the net cash (after covering its deficit) to the REIT/InvIT (provided cash flow generated by Holdco is negative)

To illustrate, if there is a negative cash flow of INR 100 but a positive cash flow from SPVs of INR 200, the Holdco, in such cases, generally offset the negative cash flow with inflows from SPVs. However, under the current regime, though the final inflow would be INR 100, the companies were compelled to pay INR 200 (100% of cash flow from SPVs). Under the new regime, SEBI aims to add a provision to allow the companies to pay the final positive cash flow, i.e. INR 100.

Synchronizing timelines for the ‘submission of quarterly reports’ with the timelines of ‘quarterly financial results’

Currently, InvIT managers are mandated to release certain quarterly reports to stock exchanges, whose information is derived from quarterly financial results. The timeline for disclosure of quarterly reports under Regulation 23(4) is 30 days from the end of the quarter whereas the proposed timeline for disclosure of quarterly financial results is 45 days from the end of the quarter. Hence, SEBI proposes to align both these timelines and proposes to allow submission of quarterly reports along with financial results in order to promote ease of doing business.

Synchronizing timelines for the ‘submission of quarterly reports to trustees’ with timelines of ‘quarterly financial results to trustees’

Similarly, SEBI has also proposed to synchronize the timelines for the submission of ‘quarterly reports to trustees’ with the timelines of ‘quarterly financial results to trustees’ under Regulation 10(18)(a) of REIT/InvIT regulations.

Synchronizing timelines for the ‘submission of valuation reports’ with timelines of ‘submission of financial results’

At present, SEBI requires REIT/InvIT valuation reports on varying deadlines as per Regulation 21(4), 21(5) and 21(6) of the REIT/InvIT regulations. Each annual, half-yearly and quarterly valuation report for InvIT, as well as annual and half-yearly valuation report for REIT, has a different timeline. However, since net asset value derived from valuation reports forms an integral part of financial results, SEBI proposes to align the timelines of submission of valuation reports with the timelines for submission of financial results. The updated timeline is proposed to be as follows:

(a) Annual financial results / valuation reports: Within 60 days from end of such year; and

(b) Quarterly financial results / Valuation reports: Within 45 days from end of such quarter.

Uniform minimum investment threshold for privately-placed InvITs across all markets

Currently, as per Regulation 14(2)(c), privately placed InvIT offers require a high minimum subscription of INR 1 crore, or INR 25 crores if 80% of the assets are income-generating in the primary market. However, the minimum investment threshold for privately-placed InvIT in the secondary market is only INR 25 lakhs as per Regulation 16(8)(b). In order to further the objective of ease of doing business, and keeping in mind the main objective of direct investment from a wider range of investors, SEBI proposes to align the minimum investment threshold to INR 25 lakhs for all privately-placed InvIT across all types of markets, i.e. primary and secondary markets.

Investor charter for REITs and InvITs

SEBI, in December 2021, introduced an investor charter and format for disclosure of investor complaints by investors by merchant bankers for ‘public offers by REITs/InvITs’ and ‘private placement of InvITs’. However, in the current regime, there exists no dedicated charters for REITs/InvITs. Hence, SEBI, in view of recent consumer-centric developments such as Online Dispute Resolution Platform and SCORES 2.0, proposes to introduce an investor charter for REITs as well as an investor charter for InvITs. 

Analyzing the Market Impact of the Proposed Reforms

If SEBI's proposed changes for REITs and InvITs become effective, the market can look forward to a sharp increase in access and participation. Reducing and streamlining the minimum investment to INR 25 lakhs on both the primary and the secondary markets will usher in the bigger universe of high-net-worth individuals and institutions, widening the investor base and enhancing secondary market liquidity. Defining the "public" unitholding to encompass related parties who are QIBs will eliminate age-old uncertainties, making it simpler for trusts to fulfill public float requirements and possibly attract more institutional capital based on international standards.

Operatively, synchronization of the financial and valuation report reporting cycles will simplify compliance and lower administrative costs for REIT and InvIT managers. Investors will have more timely and consistent disclosures, leading to increased transparency and enabling better investment choices. The ability to net negative cash flows in the HoldCo level against SPV inflows, subject to disclosure, is in line with commercial realities in business structures and will enhance cash management for sponsors and managers.

Investor protection will be greatly strengthened by the issuance of formal investor charters, which will lay down clear standards of disclosure, grievance redressal, and investor rights. Better norms of disclosure will further reduce information asymmetry and increase trust, especially among new entrants to these products. Combined, these measures should make REITs and InvITs more attractive to domestic and foreign investors, enabling faster capital formation and aligning the Indian market with international standards.

But these benefits have attendant challenges. Lowering the investment barrier exposes less sophisticated investors to complex financial instruments, and therefore robust investor education and proper grievance mechanisms are needed. There may also be short-run transition issues during the changeover to new guidelines of compliance by issuers. Overall, even as SEBI's reforms have the potential to encourage market entry, enhance transparency, and boost investor confidence, careful implementation and ongoing investor sensitization will be necessary to deliver them most effectively.

Conclusion and Way Forward

SEBI’s 2025 consultation paper mark a progressive step toward enhancing the ease of doing business, operational clarity, transparency and investor inclusiveness in the REIT and InvIT frameworks. By resolving definitional ambiguities, aligning disclosure timelines and rationalizing investment thresholds, the proposals aim to remove the longstanding friction points for issuers and investors alike.

However, successful implementation will depend upon SEBI’s ability to execute these changes while mitigating the transitional uncertainties as mentioned above. Robust enforcement of the proposed investor charters and digital grievance systems are equally important and essential which would help in maintaining the investor trust. Going forward, SEBI must continue to ensure ongoing dialogue with stakeholders, as done while formulating the current consultation paper, to fine-tune these changes in real life.