SEBI Proposes New Route for REITs and InvITs to Fund Projects Under Construction

India’s infrastructure and real estate sectors could get a new source of funding if a proposal from the Securities and Exchange Board of India (SEBI) is approved.

The market regulator has proposed allowing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to take minority stakes in under-construction projects without having controlling interest in those assets. The proposal is aimed at helping these investment vehicles build a pipeline of future income-generating assets while limiting their exposure to construction risks.

At present, REITs and InvITs have rules governing their exposure to under-construction assets. SEBI’s consultation paper proposes that these trusts should be allowed to invest in such projects even when they do not hold control, within the existing limits applicable to under-construction assets.

The change could be important for developers and infrastructure companies that need capital during the construction phase of a project. Instead of waiting until an asset is completed and generating revenue, REITs and InvITs could potentially enter projects earlier by taking minority positions.

For developers, this could create another funding channel for projects such as commercial buildings, warehouses, roads and other infrastructure assets, depending on the applicable investment rules. It may also help developers secure institutional capital before an asset reaches the operational stage.

For REITs and InvITs, the proposal offers a way to create a longer-term pipeline of assets. These trusts depend on income-producing properties and infrastructure assets to generate returns for their investors. Getting access to projects earlier could help them secure future assets before they become operational.

However, SEBI has also highlighted the need to manage construction-related risks. Under-construction projects can face delays, cost increases, approval issues and changes in market conditions. Allowing minority investments could help trusts participate in future assets while avoiding some of the risks associated with taking direct control over projects during construction.

The proposal is part of a wider effort by SEBI to make the REIT and InvIT framework easier to operate. The regulator has also suggested reducing the cooling-off period for offer-for-sale transactions involving privately placed InvITs from 12 weeks to eight weeks.

SEBI said privately placed InvITs can face liquidity challenges because their trading lot size is ₹25 lakh. This can restrict participation largely to institutional investors, companies and high-net-worth individuals. As a result, trading volumes in some privately placed InvITs can remain low, making them more likely to fall into the illiquid category.

Another proposal would recognise remote common infrastructure as real estate for REITs. The regulator has also suggested changes to how thresholds for certain unit-holder approvals are calculated.

The proposed changes matter because REITs and InvITs are becoming an increasingly important part of India’s capital-market structure. REITs allow investors to participate in income-generating real estate, while InvITs provide a route to invest in infrastructure assets that can generate regular income.

If the proposed framework is adopted, the effect could extend beyond financial markets. Easier access to institutional capital could support the development of new offices, commercial properties and infrastructure assets, while giving project owners another potential source of funding.

For investors, however, greater access to under-construction projects also means the importance of project selection and risk assessment will remain high. Construction delays and cost overruns can affect the timing of income generation and ultimately influence returns.

The proposal is now part of SEBI’s consultation process, so it is not yet a final rule. The regulator will consider stakeholder feedback before deciding on the final framework.

For India’s infrastructure and real estate markets, the proposal points towards a wider role for institutional capital in project development. If implemented carefully, REITs and InvITs could become more involved before projects are completed, helping connect long-term investors with the next generation of income-generating assets.