This note is only intended as a general overview and is not to be viewed as a substitute for legal advice. Brands & Bonds shall not be liable for any actions taken or not taken on the basis of this note.

What is REIT

Real Estate Investment Trust commonly referred as REIT has its structure similar to mutual fund structure. Identical to mutual funds, REITs will also pool money from public/investors and issue ‘Units’. REIT is essentially a Trust and the Units issued essentially imply the proportional beneficial interest of the assets of the Trust. REIT should be professionally managed as investors are able to invest in a professionally-managed portfolio of real estate properties. Precisely a real estate mutual fund can be called as a REIT.



The process of introducing REIT in India commenced when Chapter VIA was introduced to Mutual Fund Regulation, 1996. Further SEBI (Mutual Funds) Regulations, 1996 was amended vide Notification dated April 16, 2008 so as to permit mutual funds and launch Real Estate Mutual Funds. In consequence SEBI for the third time brought Draft Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2013 and finally SECURITIES AND EXCHANGE BOARD OF INDIA (REAL ESTATE INVESTMENT TRUSTS) REGULATIONS, 2014 was notified on September 26, 2014. The Finance Act, 2014 has finally provided tax pass through for the REIT.

This has initiated the process of REIT regime in India.

Salient features of SEBI (REIT) Regulations 2014 are:

  • REIT should be set up as a Trust under the provisions of Indian Trust Act and should be registered with SEBI
  • An application for registration shall be made with SEBI.
  • Application fee shall be Rs. 1,00,000 (One lakh) which is non-refundable.
  • The Registration fee shall be 10 lakhs (non-refundable) on the receipt of certificate of registration.
  • Value of assets owned by REIT shall not be less than 500 Crore.
  • REIT shall make initial offer of Units only by way of public issue.
  • 25% of the Units should be offered to Public.
  • Offer Size of Units shall not be less than 250 Crore.

Investment of REIT

The Investment by a REIT shall only be in (i) SPVs or (ii) properties or (iii) securities or (iv) Transferable Development Rights (TDR).

SPV Mode of Investment

REIT should hold not less than 50% equity share capital or interest and the SPV shall hold not less than 80% of its assets directly in properties and further shall not invest in other SPVs. Such SPV should not be engaged in any activity other than holding and developing property.

The REIT may invest in properties through SPVs subject to the following,-

  • No other shareholder or partner of the SPV shall have any rights that prevents the REIT from complying with the provisions of these regulations;
  • The manager, in consultation with the trustee, shall appoint not less than one authorized representative on the Board of directors or governing board of such SPVs;
  • The manager shall ensure that in every meeting including annual general meeting of the SPV, the voting of the REIT is exercised subject to provisions of Companies Act, 2013.

Direct Investment

  • The REIT shall not invest in vacant land or agricultural land or mortgages other than mortgage backed securities.
  • Not less than 80% of value of the REIT assets shall be invested proportionate to the holding of the REITs in completed and rent generating properties.
  • Not more than 20% of value of the REIT assets shall be invested proportionate to the holding of the REITs in assets in properties in which
    • not more than 10% of value of the REIT assets shall be invested which are:
      • under-construction properties which shall be held by the REIT for not less than three years after completion.
      • under-construction properties which are a part of the existing income generating properties owned by the REIT which shall be held by the REIT for not less than three years after completion.
      • completed and not rent generating properties which shall be held by the REIT for not less than three years from date of purchase.
    • listed or unlisted debt of companies or body corporate in real estate sector provided that it shall not include any investment made in debt of the SPV.
    • mortgage backed securities.
    • equity shares of companies listed on a recognized stock exchange in India which derive not less than 75% of their operating income from real estate activity as per the audited accounts of the previous financial year.
    • government securities.
    • unutilized FSI of a project where it has already made investment.
    • TDR acquired for the purpose of utilization with respect to a project where it has already made investment.
    • money market instruments or cash equivalents.
  • Not less than 75% of the revenues of the REIT and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets.
  • Not less than 75% of value of the REIT assets proportionately on a consolidated basis shall be rent generating.
  • REIT shall hold at least two projects, directly or through SPV, with not more than 60% of the value of the assets, proportionately on a consolidated basis, in one project.
  • REIT shall hold any completed and rent generating property, whether directly or through SPV, for a period of not less than three years from the date of purchase of such property by the REIT or SPV.
  • For any sale of property, whether by the REIT or the SPV or for sale of shares or interest in the SPV by the REIT exceeding ten per cent. of the value of REIT assets in a financial year, the manager shall obtain approval from the unit holders in accordance with regulation.
  • REIT shall not invest in units of other REITs.
  • REIT shall not undertake lending to any person.
  • No schemes shall be launched under the REIT.

Parties of the Trust

  • Sponsors
  • Trustee
  • Manager
  • Principal Valuer

I. Sponsors

Sponsor is the person who sets up the REIT. (Equivalent to Author of the Trust) The REIT may have a maximum of three (3) Sponsors and each such Sponsor is eligible to hold 5% respectively. All Sponsors collectively should have a collective Net worth (NW) of 100 Crore and individually 20 Crore of NW. The Sponsors should hold not less than 25% of the Units of REIT for a period of 3 years from the date of first listing and after 3 years they shall hold 15% throughout the life of the REIT.

The Sponsor should have a minimum of 5 years’ experience in real estate.

II. Trustee

The Trustee is to hold the assets in trust for the Unit Holders. The Trustee of REIT shall be a SEBI registered Debenture Trustee as per the (Debenture Trustee) Regulation 1993.

The Trustee is an Independent body not be an associate of the sponsor/manager. The Roles and responsibilities of the Trustee should be governed by Investment Management Agreement.

The Trustee is entrusted with the supervisory role to ensure the activities of REIT be in accordance with SEBI regulations. The Trustee shall make ensure that the real estate held by REIT have a proper and marketable title.

III. Manager

The Manager has operational responsibilities and should have a minimum of five year experience in Real Estate. He should also have skills in property development, redevelopment, acquisitions, leasing and management.

IV. Principal Valuer

The Principal Valuer is expected to conduct full valuation at least once in a year and the Net Asset Value of REIT shall be declared at least twice in a year.



Under section 10(23FD), the dividend received from business trust is exempt in the hands of the Unit holders. Distribution of capital gain component to unit holders, by the Trust is exempt in the hands of the unit holders.

It is reported in March first week of 2015 that Finance Minister Mr. Arun Jaitley rationalised capital gain tax regime for the sponsors of newly-created business structure REITs. Further, the Budget also proposed that the rental income arising from real estate assets directly held by the REIT would be allowed to pass through and to be taxed in the hands of the unit holders of the REIT.

Author - Vineed Abraham & Varghese K Paul

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