Should SEBI Follow Singapore’s Footsteps and Allow REITs to Invest in Overseas Properties?

[Pratyasha is a student at National Law University Odisha. The following article is one of the winning entries in the 2nd Article Writing Competition 2025 organized by IDIA: Increasing Diversity by Increasing Access to Legal Education (Odisha Chapter).]

The recent amendment in the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014 (SEBI (REITs) Regulations) is a bold step by Securities Exchange Board of India (SEBI) as it opens the doors for the common investors to invest in REITs. Real estate investment trusts (REITs) can be defined as a company that manages income-generating real estate. It acts as an instrument for investors to participate in real estate ownership and management without actually buying properties. The recent amendment in the SEBI (REITs) Regulations introduced Small and Medium REITs (SM-REITs) with ticket price of INR 1,00,000 and it has strengthened the REIT framework. 

This time is ripe for the REIT’s legal framework in India to evolve even more rapidly. As the global REITs of the USA and Singapore make strides by investing in real estate outside their borders, the question arise- Should Indian REITs follow their footsteps and invest in properties outside India?  

It is also important to keep in mind that Section 18(1) of Chapter 5 of the SEBI (REITs) Regulations explains that any investment by a REIT shall be in properties / Special Purpose Vehicles / securities which are situated only in India and not anywhere else.

Since geographical diversification is gaining popularity, there is a possibility for SEBI to amend its regulations to allow Indian REITs to invest in foreign properties and follow in the footsteps of global frameworks since SEBI had previously drawn lessons from Singapore’s approach to corporate governance of Singapore REITs (S-REITs). 

Against this backdrop, in this article, the author tries to weigh in on the merits and risks of allowing Indian REITs to invest in overseas assets by taking insights from the Singapore REIT market. Lastly, the article highlights the pitfalls involved in introducing REITs with international portfolio.

Current REIT Framework in India

In India, REIT is a type of trust which is registered under SEBI (REITs) Regulations. The purpose of REITs is to raise funds from investors and invest the funds in the real estate sector like office building, apartments, warehouses, malls, etc. The income generated from the assets of the REIT is regularly allocated to the investors.

Presently, there are four REITs present in the market and they offer a dividend yield of 4-8%. In 2024, SEBI also allowed the creation of SM-REITs by reducing the minimum subscription to INR 10,00,000. The first SM-REIT IPO got listed very recently as well. This is a huge step in the path of maturity for the REIT market. However, the Indian REIT market has not yet evolved like the REIT framework of global jurisdictions like the USA and Singapore. Gaining insights from Singapore can be valuable for Indian regulators to shape their actions in this area of law.

Singapore REIT Model as a Reference

Singapore has the largest REIT market in Asia ruling out Japan. The combined market capitalization of S-REITs is almost worth USD 100 billion and it is growing day-by-day. At present, there are 41 SREITs and comprises 12% of the market capitalization of the Singapore Exchange. 11% S-REITs own only Overseas Assets and 83% of S-REITs own both Singapore and assets outside Singapore.

Significant S-REITs like Mapletree and CapitaLand maintain very extensive overseas portfolios because it gives investors exposure to foreign real estate markets, especially when it comes to Office and Retail REITs. S-REITs with properties across the world yield favorable dividend returns and long-term total returns. Along with that, the reason why S-REITs with overseas properties are growing rapidly in Singapore are favorable taxation framework and the consistent efforts of the Monetary Authority of Singapore to reinforce good corporate governance in the S-REIT market. While REITs with overseas assets might look tempting to the investors, it is important to weigh their pros and cons.

Pros of Allowing Indian REITs to Invest Overseas

From the perspective of investors, S-REITs that invest in properties present overseas yield 8.3% or more. If we compare to the yield of Indian REITs that invest only in local market, it only ranged from 4-7%.

Achieving risk reduction is another advantage of country diversification, through investing in REITs with overseas properties, rather than diversification through property type.

For S-REITs in the hospitality and logistics sector, geographical diversification makes sense for strategic reasons and in order to establish the supply chain operations of their own businesses. Owning real estate overseas gives the REITs an upper hand and makes their portfolios wide-ranging.

Cons of Allowing Indian REITs to Invest Overseas

Since investments in REITs happen due to the convenience and ease they offer, investors are more hesitant to invest in REITs with overseas properties if they are not familiar with foreign real estate market. Stock analysts, who aid investors to make informed decisions regarding their investments, are also unenthusiastic to cover Foreign REITs, especially those owning real estate in very unfamiliar locations. 

REITs’ managers are one of the most important parts of REITs. They take all the investment decisions with respect to the REITs. To make informed investments, REITs’ managers are required to know the palate of local residents along with their purchasing power. Therefore, venturing into foreign markets with local REITs who are not familiar with the foreign markets is not a wise decision.

It has also been found that geographically diversified S-REITs incur higher total expenses which might not fit into the diversification strategies of investors. It might lead to overstretching of resources and time when REITs remotely manage real estate portfolios distributed across different regions. Therefore, diversification outside local limits may not add value to some REITs. 

Conclusion

Through this article, it has been underscored that REITs with overseas properties seem alluring and give investors exposure to the global real estate market.

However, it is to be noted that the Indian REIT market is still very new with only four REITs as compared to Singapore REITs which first got listed in 2002. The Indian REIT regime along with the REITs’ managers has not yet matured enough to handle properties outside the local limits. There are multiple risks involved which vary from management and administrative costs, strategic risks and the complexities that come with handling property that are unfamiliar to the REITs’ managers. Assessing the overseas market dynamics can be challenging for local REITs and hence, it creates space for negative pitfalls that come along with expected returns.

The reason why S-REITs have succeeded in the REIT market with mostly overseas properties is because of robust taxation and investment framework for property funds. Taking inspiration from the S-REIT market, SEBI needs to focus on strengthening REIT’s regulatory framework and work on investing in the vast domestic market available through REITs. In conclusion, Indian REITs need some maturation before they venture into foreign seas.