Sebi Proposes Letting REITs, InvITs Take Minority Stakes in Under-Construction Projects

The Securities and Exchange Board of India has proposed a rule change that could give real estate and infrastructure developers a new route to raise capital without giving up full ownership of their assets. Under a fresh consultation paper, Sebi has suggested allowing real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) to take minority stakes in third-party projects, including those still under construction.

What the proposal changes

Currently, REITs and InvITs largely need to acquire a controlling interest in a project to invest in it. Sebi's proposal would relax that requirement, letting these trusts buy minority stakes instead. In its consultation paper, the regulator said that investing in under-construction assets at the minority level would let REITs and InvITs build a pipeline of stable, revenue-generating properties while limiting their exposure to construction-related risk.

For developers, the appeal lies in flexibility. A builder could sell a partial stake in a project to a REIT or InvIT, access fresh capital, and still retain meaningful ownership and, in many cases, operational control. Industry executives say the funds released this way could be redirected toward buying new land, funding ongoing construction, repaying existing debt, or investing in additional projects — essentially improving how efficiently developers can put their capital to work across a portfolio rather than tying it up in a single completed asset.

A market that has grown quickly

The proposal arrives at a time when India's REIT and InvIT market has expanded rapidly. InvITs distributed ₹22,769 crore in the last financial year alone, taking their cumulative distributions since inception past ₹91,000 crore, while assets under management climbed to roughly ₹7.1 trillion from about ₹6.3 trillion a year earlier, according to industry body data. Listed REITs, meanwhile, have seen their combined market capitalisation grow from around ₹271 billion in FY20 to roughly ₹1.73 trillion in the first nine months of the current financial year.

Sector experts expect the new structure to be most attractive for assets with predictable cash flows — think toll roads, renewable energy plants and power transmission lines in infrastructure, and Grade A offices, business parks, logistics parks, warehousing and data centres in real estate. These are segments that already draw strong institutional investor interest and where minority stakes could let developers monetise part of an asset while continuing to build and manage it.

Governance questions remain

The flexibility comes with trade-offs. A REIT or InvIT that owns only a minority stake in a project will naturally have less say over decisions such as capital expenditure, refinancing, distributions and related-party transactions. Industry voices have flagged governance, rather than asset quality, as the central concern, arguing that independent valuations, board representation, veto rights on major decisions and stricter disclosure requirements at the project level will be important safeguards if the framework moves ahead.

The government has already positioned REITs and InvITs as key vehicles for broader asset monetisation in the economy, with official estimates suggesting these instruments have helped unlock more than ₹1.5 trillion in capital to date. If Sebi's proposal is finalised, it could open a meaningful new financing channel for developers navigating a capital-intensive sector, while testing how well governance safeguards hold up once minority institutional capital becomes more common in projects that are still being built.

This article is an original editorial summary based on publicly reported information. It has been independently written for publication and does not reproduce content from any single source.