SEBI’s Bold Move: New Rules to Strengthen REITs and InvITs for Investors

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    In a move aimed at enhancing investor protection and promoting transparency, the Securities and Exchange Board of India (SEBI) has proposed significant changes for real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). The proposed amendments, presented after a late evening board meeting on Wednesday, include a requirement for sponsors to maintain a certain minimum unit holding on a reducing scale throughout the life of the investment vehicles.

    Under the current regulations, sponsors are mandated to hold a minimum of 15 per cent unit holding for a period of three years from the date of listing the units. However, the new proposal suggests that sponsors must maintain a minimum unit holding on a decreasing scale during the entire duration of the investment vehicle. This modification aims to ensure a continuous alignment of unit holders’ interests with the sponsors of REITs and InvITs.

    Additionally, SEBI has decided to grant board nomination rights to unit holders of these investment vehicles. According to the proposal, unit holders with 10 per cent or more unit holding, either individually or collectively, will now have the ability to nominate members to the board. This move is intended to empower minority unit holders, similar to shareholders in a company, and enhance transparency and accountability.

    Experts in the real estate sector have welcomed these proposed changes, asserting that they are timely and aligned with the goal of safeguarding the interests of minority unit holders. The introduction of a minimum unit holding for sponsors is seen as a positive step towards maintaining accountability, ensuring that sponsors remain invested and actively interested in the success of the investment vehicles.

    Anuj Puri, Chairman of Anarock and an independent director on the board of Embassy Office Park REIT, lauded SEBI’s decision, stating that the proposed changes would grant investors greater control over their investments by allowing them to nominate representatives to the board.

    However, some concerns have been raised about the potential impact on sponsors, as REITs and InvITs are often regarded as long-term asset monetization vehicles. Despite this, experts like Samantak Das, Chief Economist and Executive Director at JLL, argue that having “skin in the game” will encourage sponsors to have an active interest in the success of the investment vehicles.

    In addition to the minimum unit holding requirement and board nomination rights, the SEBI board has proposed the introduction of a provision for self-sponsored investment managers for REITs and InvITs. This would create an opportunity for independent, professionally managed investment managers to emerge while providing an additional exit option for sponsors. However, it’s important to note that the minimum unit holding requirement would still be applicable in this scenario.

    The proposed changes are expected to enhance the attractiveness of REITs and InvITs as investment options for retail investors, allowing them to participate in India’s growing commercial real estate market. With four REITs already listed on Indian stock exchanges, these investment vehicles are gaining popularity among retail investors.

    SEBI’s initiatives signify a proactive approach in fostering a conducive environment for the growth of the real estate and infrastructure investment markets while prioritizing investor interests and promoting market transparency.

    Also Read:- Real Estate Industry Veterans Welcome RBI’s Decision to Maintain Repo Rate, Aiming for Stability and Growth

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