REITs Gain Traction as SEBI Classifies Them as Equity
While the broader equity markets saw a lacklustre performance, real estate investment trusts (REITs) surged on Monday, driven by SEBI's decision to classify them as equity. This move is expected to attract more institutional investments and enhance liquidity in the REIT market.
ReitsEquitySebiReal EstateInvestmentsReal Estate NewsSep 15, 2025
REITs operate like companies that own and manage income-generating real estate assets. In India, most listed REITs, except for Nexus Select Trust which manages retail assets like shopping malls, focus on large commercial office parks. REITs have been attracting investor interest due to the rising demand for office space, particularly from Global Capability Centres. The latest boost for REITs comes from the Securities and Exchange Board of India (SEBI) granting them equity status.
On Friday, SEBI approved amendments to its regulations, reclassifying REITs as equity while retaining the hybrid classification for infrastructure investment trusts (InvITs). SEBI stated, “The reclassification was proposed, inter alia, considering the characteristics of REITs, i.e., being more inclined towards equity, relatively more liquid, and to ensure alignment with global practices.”
This decision is expected to bring more inflows into REITs from mutual funds and specialized investment funds. Previously, mutual fund schemes could only invest up to 10 per cent of their net asset value in units of REITs and InvITs. Now, investments in REITs will fall within the allocation limit for equity instruments. Additionally, this move could pave the way for REITs to be included in market indices, further attracting more investments.
REIT executives have been advocating for this change to open up more institutional investments in the asset class. Preeti Chheda, the CFO of Mindspace Business Parks REIT, noted that insurance companies were limited to investing only 3 per cent of their assets under management (AUM) in REIT units. The Indian REITs Association welcomed SEBI’s decision, stating it marks a significant milestone in strengthening the REIT ecosystem in India and aligns with global best practices where REITs are part of equity indices.
Amit Shetty, CEO of Embassy REIT, highlighted the potential of this move to broaden investor participation, enhance liquidity, and enable future index inclusion. The Association of Mutual Funds of India (AMFI) also welcomed SEBI’s decision. Venkat Chalsani, chief executive of AMFI, commented, “The reclassification of REITs as equity for mutual fund investments is a timely step that will enhance diversification opportunities and support the growth of real estate as an investable asset class.”
Shobhit Agarwal, CEO of Anarock Capital Advisors, pointed out that India’s REITs have demonstrated strong fundamentals with distribution yields averaging 6-7 per cent, significantly higher than mature markets like the USA (2.5-3.5 per cent) and Singapore (5-6 per cent). With three more REITs expected over the next four years, India is poised to reach a market capitalisation of $25 billion by 2030, according to a study by Anarock and real estate body CREDAI.
The strength of the Indian commercial office market is a key driver of this growth. In the first half of 2025, net absorption reached 27 million square feet, already surpassing half of the full-year tally for 2024. Out of 520 million square feet of Grade A REIT-worthy stock, only 32 per cent has been listed, indicating significant room for expansion. Currently, institutional penetration of REITs in India stands at 20 per cent, much lower than global benchmarks of 55 per cent in Singapore and 96 per cent in the USA, highlighting the vast untapped potential.
Frequently Asked Questions
What is a REIT?
A Real Estate Investment Trust (REIT) is a company that owns and operates income-generating real estate assets. REITs allow investors to invest in a diversified portfolio of properties without directly owning and managing them.
Why did SEBI reclassify REITs as equity?
SEBI reclassified REITs as equity to align with their characteristics, such as being more inclined towards equity and being relatively more liquid. This move also aligns with global best practices where REITs are part of equity indices.
What are the benefits of this reclassification for REITs?
The reclassification is expected to bring more institutional investments into REITs, enhance liquidity, and potentially allow REITs to be included in market indices. This should attract more flows and broaden investor participation.
What is the current market outlook for REITs in India?
India’s REIT market is expected to grow significantly, with a potential market capitalisation of $25 billion by 2030. The strong fundamentals and high distribution yields of REITs, coupled with the rising demand for office space, make them an attractive investment opportunity.
How does the reclassification affect mutual fund investments in REITs?
Previously, mutual fund schemes could only invest up to 10 per cent of their net asset value in REITs. Now, investments in REITs will fall within the allocation limit for equity instruments, allowing for higher investment levels and greater diversification.
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