SEBI proposal: REITs and InVITs may be allowed to invest in under construction projects

The Securities and Exchange Board of India (SEBI) on Thursday, August 8, 2026, issued a "Consultation Paper on Measures Towards Ease of Doing Business for REITs and InVITs". The paper proposes to allow both trusts to invest in under-construction projects of third parties.

"It is proposed that InvIT and REIT Regulations shall be amended to permit InvITs and REITs to invest in under-construction projects without controlling interest within the existing limits available for investments in under-construction projects," the regulator said.

SEBI has also proposed that such investments in under construction projects should be subject to the following conditions:

• Restricted to only those investee entities that engage in any activity pertaining and incidental to the underlying real estate/infrastructure and hold not less than 80%/90% of their assets in real estate/infrastructure projects for REITs/InvITs, respectively.

• Clear commitment and glide path to achieve the required stake in such entity in future to qualify such investments as HoldCo/SPV.

• A binding agreement between the shareholders of the investee entity and the REIT/InvIT to ensure that decisions taken by such shareholders are not in contravention to the aforementioned glide path proposed by the InvIT/REIT.

• Binding agreement shall require the shareholders of the investee entity to ensure that the board of the investee entity passes a resolution approving the glide path proposed by the InvIT/REIT.

• No shareholding or interest/rights of sponsor and sponsor group entities in such investee entity.

• Such investment shall be approved by the Board of the Investment Manager/Manager.

Further, there should be no shareholding or interest/rights of sponsor and sponsor group entities in such investee entity.

The paper also proposes that the threshold for unitholders' approval for the above matters may be amended to provide that votes cast in favour of the resolution shall be at least 75% of the total votes cast for the resolution.

Why this change?

At present, REITs and InvITs are not allowed to invest in under-construction third-party projects without controlling interest.

The regulator has made the above proposal after industry associations requested it to permit investment in third-party projects without controlling interest, particularly for under-construction projects within the existing limits for investment in under-construction projects.

Industry association told the regulator that there is a need for structured capital during the development phase of a project. Hence, REITs and InvITs may be allowed to invest in under-construction projects without controlling interest within the existing limits of under-construction exposure permitted under the regulations.

Investing a minority stake in under-construction assets would enable REITs and InvITs to build a pipeline of stable, revenue-generating assets while minimizing exposure to construction-related risks, the associations said.

"Allowing REITs and InvITs to invest in minority stakes of under-construction assets may provide a strategic mechanism for long-term growth. Hence, it is proposed that REITs and InvITs may be allowed to invest in under-construction projects within the existing limits available for investment in under-construction projects without controlling interest," the paper noted.

"Notably, REITs and InvITs would hold a non-controlling stake in such investee entities at the beginning with an intent to convert these entities into SPVs in future. Hence, to ensure a simpler structure and to facilitate better understanding for unitholders, it is proposed that such investments may be made only at the REIT/InvIT level and not at the level of an SPV or HoldCo," it added.

The consultation paper is open to public comments and suggestions till August 27, 2026.