For a long time, commercial real estate in India functioned like a closed circuit reserved for large institutions, private developers, and investors with deep capital and even deeper networks. It was a market defined by opacity, limited access, and high entry barriers. That changed when regulation stepped in.
In 2014, the Securities and Exchange Board of India (SEBI) introduced the REIT framework, a regulatory shift that would fundamentally alter how commercial real estate is accessed, governed, and trusted. It didn’t just enable a new investment category; it restructured the very rules of participation.
REITs (Real Estate Investment Trusts) have since opened India’s premium office assets to individual and institutional investors alike. But what makes this model work and scale is the robust regulatory foundation SEBI has built around it.
This blog explores how SEBI’s REIT regulations have transformed commercial real estate investment in India, making it more transparent, liquid, and inclusive than ever before.
REITs in India: A Quick Overview
REITs are regulated investment vehicles that own and manage income-generating real estate. Investors can buy units of a REIT, just like shares, and earn income from the rents collected by the properties in the trust.
India’s first REIT was listed in 2019. Since then, multiple REITs have emerged, collectively giving investors access to over 100 million square feet of leased commercial space across top cities.
At the core of this access is SEBI’s regulatory framework, which ensures that the properties, the returns, and the governance all meet a defined institutional standard.
Key SEBI Regulations That Define REIT Structure in India
1. Portfolio Composition and Use Restrictions
To ensure asset stability, SEBI mandates that:
- At least 80% of the REIT’s value must be in completed, income-generating commercial assets
- No more than 10% can be allocated to under-construction properties
- Properties must be clearly titled, rent-yielding, and legally compliant
This ensures that REITs function as reliable income-generating instruments rather than speculative bets on future development.
2. Minimum Public Holding and Listing Requirements
SEBI requires REITs to:
- Be listed on recognised Indian stock exchanges
- Maintain a minimum public float of at least 25% of outstanding units
This listing ensures liquidity for investors and market-discovered pricing, making REITs more transparent than traditional property investments.
3. Income Distribution Mandate
One of the most investor-friendly clauses:
- REITs must distribute at least 90% of their net distributable cash flows to unitholders
- Distributions can be in the form of interest, dividends, or principal repayments
- Payouts must happen at least twice a year (though many REITs do this quarterly)
This provision aligns REIT performance with investor returns, while offering a stable, income-generating product, a significant draw in a low-interest environment.
4. Sponsor, Trustee, and Manager Roles
SEBI’s framework mandates clear role separation:
- Sponsor: The entity that transfers assets into the REIT
- Trustee: Holds the REIT assets in fiduciary capacity for unitholders
- Manager: Runs day-to-day operations and strategy for the REIT portfolio
This separation, combined with eligibility criteria, avoids conflicts of interest and ensures the trust is professionally and transparently managed.
5. Valuation and Disclosure Norms
Trust and transparency are central. SEBI mandates:
- Bi-annual valuations of the REIT’s properties by independent registered valuers
- Quarterly financial reporting
- Detailed disclosures on occupancy, rent collections, tenant concentration, lease tenures, and ESG metrics
- Audited financials and operational performance benchmarks
This level of disclosure exceeds that provided by most traditional real estate owners, making REITs one of the most transparent investment products in the real estate space.
How These Regulations Have Changed India’s CRE Investment Landscape
SEBI’s REIT regulations have had a profound impact on the product and the entire commercial real estate ecosystem.
Made CRE Investable for a Wider Audience
Investors can now participate in real estate with a few thousand rupees i.e. a far cry from the crores required for direct commercial property ownership.
Increased Liquidity and Price Discovery
Listed REITs can be bought and sold on exchanges, making CRE a liquid, tradeable asset class for the first time.
Standardised Governance and Asset Management
REITs have raised the bar on how office assets are managed, with initiatives in professional-grade leasing, operations, ESG tracking, and tenant experience.
Boosted Developer and Institutional Participation
REITs have created a viable exit route for developers and private equity firms, bringing more institutional capital and discipline into Indian real estate.
How India’s Framework Compares with the USA
SEBI’s REIT regulations draw from mature markets like the US, but with context-appropriate checks and safeguards.
| Feature | India (SEBI) | USA (IRS) |
| Minimum Distribution | At least 90% of net distributable cash flows to unitholders | At least 90% of taxable income to shareholders |
| Public Float | Minimum 25% public float required | No specific public float requirement; ownership tests apply for tax benefits |
| Asset Allocation | At least 80% in completed and income-generating properties | At least 75% of total assets in real estate and cash |
| Development Cap | Maximum 10% in under-construction or non-income-generating assets | No explicit cap; must meet income and asset tests to qualify as a REIT |
This table has been referred to from SEBI’s FAQ on REITs (May 2022) and the U.S. SEC’s Investor Bulletin on REITs.
Looking Ahead: Evolving Regulations, Expanding Possibilities
SEBI has continued to evolve the framework to increase participation and strengthen governance. Recent updates include:
- Allowing mutual funds to launch REIT feeder funds
- Reducing the minimum investment threshold to attract retail investors
- Exploring inclusion of new asset classes like retail malls, data centres, and logistics parks
The regulatory evolution signals intent: to make REITs not just accessible, but also adaptable to India’s future real estate needs.
SEBI’s Role in Real Estate’s Maturity
The transformation of commercial real estate into a structured, transparent, and institutionally governed investment class didn’t happen by accident. It happened because SEBI designed a regulatory framework that was bold in vision and measured in execution.
By prioritising governance, income stability, investor protection, and liquidity, SEBI’s REIT regulations have:
- Brought credibility to CRE
- Given retail and institutional investors a level playing field
- Enabled real estate to evolve from a developer’s asset to a public investment vehicle
In doing so, SEBI has regulated REITs and helped institutionalise Indian real estate, making it more inclusive, reliable, and future-ready.