SEBI Proposes Allowing REITs, InvITs To Invest In Third-Party Under-Construction Projects

The Securities and Exchange Board of India (SEBI) on Thursday issued a consultation paper proposing a series of ease of doing business measures for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

One of the key proposals is to permit them to invest in third-party under-construction projects without acquiring a controlling interest.

The proposals are based on inputs received from industry associations, including the Indian REITs Association and Bharat InvITs Association, as well as recommendations of the Hybrid Securities Advisory Committee (HySAC). Through the consultation paper, SEBI has invited public comments on five proposals relating to REITs and InvITs.

At present, REITs and InvITs cannot invest in third-party under-construction projects through third-party special purpose vehicles (SPVs) without having a controlling interest.

SEBI has proposed amending the REIT and InvIT Regulations to permit such investments within the existing exposure limits.

This is, however, subject to several safeguards. These include a clear commitment and glide path to acquire the required stake in the investee entity, a binding agreement with other shareholders, approval by the board of the investment manager or manager, and a condition that neither the sponsor nor sponsor group entities have any shareholding, interest, or rights in the investee entity.

SEBI has also proposed changing the threshold for unitholder approval in certain matters.

Instead of requiring approval from 75% by value, the proposal requires votes cast in favour to account for at least 75% of the total votes cast. According to the regulator, the change would simplify the approval process and align it with the Companies Act, 2013.

The consultation paper also proposes changes to the framework governing exit offers when there is a change in sponsor. It further proposes recognising remote common infrastructure as real estate for REITs and reducing the cooling-off period for offers for sale by privately listed InvITs.

SEBI has invited public comments on the consultation paper until August 27, 2026.