SEBI Reclassifies REITs as Equity, Unlocking Major Fund Flows
The Securities and Exchange Board of India (SEBI) has reclassified Real Estate Investment Trusts (REITs) as equity instruments, paving the way for greater institutional participation and deeper capital mobilization in the Indian real estate market.
ReitsEquity InstrumentsReal EstateSebiInstitutional ParticipationReal Estate NewsSep 14, 2025
This decision places REITs on par with listed stocks in mutual fund portfolios, addressing a long-standing classification anomaly. By delinking REITs from Infrastructure Investment Trusts (InvITs), which will continue to be treated as hybrid instruments, SEBI has opened new avenues for capital mobilization and liquidity in the country’s real estate market.
“This brings India in line with global best practices where REITs are an integral part of equity indices. In markets like the US, REITs represent over $1.5 trillion in market capitalization and form a core component of the S&P 500,” said Asheesh Mohta, Head of Real Estate India, Blackstone. “India currently accounts for less than 1% of global REIT market capitalization, but with this progressive step, the opportunity for index inclusion, deeper institutional participation, and enhanced capital flows is immense.”
REITs were introduced in India in 2019 and, although they currently represent a fraction of the global market size, they have shown their potential as a stable income-yielding instrument. With Grade A office stock in India crossing 700 million sq ft, REITs are becoming increasingly central to the country’s urbanization and corporate growth story.
“Globally, REITs have proven to be a stable asset class delivering annualized returns of 8-12% with far lower volatility than direct real estate exposure. By aligning REITs with equity, SEBI has removed a long-standing classification anomaly in India. This will not only enhance retail participation through mutual funds and ETFs but also allow pension and sovereign wealth funds to increase exposure,” said Sandeep Parekh, Managing Partner at FinSec Law Advisors.
Moves like this signal a shift towards greater acceptance of REITs as a mainstream investment option. “We see this as a catalyst to broaden investor participation, enhance liquidity, enable future index inclusion, and further strengthen REITs as a mainstream investment asset class,” said Amit Shetty, CEO of Embassy REIT.
The timing of SEBI’s move is critical, coming at a stage when India’s real estate sector is witnessing rising global attention and steady occupier demand. “This long-awaited move brings regulatory clarity, simplifies fund flows, and aligns India with global practices, making Real Estate far more attractive to both domestic and international investors. Greater participation through equity indices and mutual funds will not only improve liquidity but also reduce the cost of capital for developers,” said Shirish Godbole, CEO of Knowledge Realty Trust, India’s most recent REIT.
According to Gautam Mehra, Partner at PWC, globally, REITs are well-established, with over 40 countries adopting the structure and institutional allocations forming a mainstream part of diversified portfolios. India’s REIT market, at under $20 billion, has made significant strides since the introduction of the enabling REIT Regulations in 2014.
“REITs already own and manage over 160 million sq ft of Grade A office space, representing roughly 20% of India’s premium commercial stock, with occupancy levels consistently above 85-90%. This reclassification will pave the way for index inclusion, broaden institutional participation, and align India with global practice. It should deepen market liquidity, attract larger pools of capital into real estate, and diversify the investor base further,” Mehra said.
With five listed REITs already trading on Indian exchanges and more in the pipeline, the SEBI decision firmly positions India to scale its market, integrate with global benchmarks, and attract long-term capital at a time when the real estate sector is on a strong growth trajectory. For investors, the equity classification opens up new access points, from index-linked funds to broader mutual fund participation. For asset managers and developers, it means greater liquidity, smoother fundraising cycles, and enhanced visibility among global investors.
Frequently Asked Questions
What is the significance of SEBI reclassifying REITs as equity instruments?
The reclassification of REITs as equity instruments by SEBI is significant because it aligns REITs with listed stocks in mutual fund portfolios, addressing a long-standing classification anomaly. This move opens new avenues for capital mobilization, liquidity, and deeper institutional participation in the real estate market.
How does the reclassification of REITs impact mutual fund allocations?
The reclassification of REITs as equity instruments allows mutual funds to allocate a higher percentage of their portfolios to REITs, as they are now treated on par with listed stocks. This can enhance retail participation through mutual funds and ETFs.
What are the potential benefits for global investors in India's REIT market?
The reclassification of REITs as equity instruments brings regulatory clarity, simplifies fund flows, and aligns India with global practices. This makes real estate more attractive to both domestic and international investors, potentially increasing participation and capital inflows.
How does the reclassification affect the cost of capital for real estate developers?
The reclassification of REITs as equity instruments can reduce the cost of capital for real estate developers by improving liquidity and attracting more institutional and retail investors. This can lead to smoother fundraising cycles and enhanced visibility among global investors.
What is the current market capitalization of REITs in India compared to global markets?
India currently accounts for less than 1% of global REIT market capitalization. However, with the reclassification of REITs as equity instruments, there is a significant opportunity for index inclusion, deeper institutional participation, and enhanced capital flows, which could boost India's REIT market significantly.
Related News Articles
Rise of Tier 2 Cities: The New Frontier of Real Estate Investment in India
Tier 2 cities are emerging as major contributors to India's real estate growth
The Khan Siblings' Rising Empire: Aryan and Suhana's Properties and Future Projects
Shah Rukh Khan's children, Aryan and Suhana, are making a name for themselves in Bollywood and real estate, following in their father's footsteps.
House of Hiranandani to Invest Rs 3,200 Crore in Redeveloping 5 Housing Societies in Mumbai
House of Hiranandani, a leading real estate company, plans to invest Rs 3,200 crore in redeveloping five housing societies in Mumbai, with a total area of 17 lakh square feet and a GDV of Rs 5,000 crore.
Prime Mumbai Land Parcel Up for Grabs: RLDA Invites Bids for 10000 sqm Property in Mahalaxmi
The reserve price for the property is set at ₹805 crore, reflecting its high potential for premium projects in this sought-after location.
SBI Funds Management Ltd's Big Bet on Mumbai's Bandra Kurla Complex
Mumbai real estate: SBI Funds Management Ltd buys two commercial units in Bandra Kurla Complex for ₹103 crore
Aditya Birla Real Estate Stock Rises 3.9% After Four-Day Decline, Still Underperforms Sector
Aditya Birla Real Estate's stock saw a 3.9% increase on January 14, 2025, after four consecutive days of decline, reaching an intraday high of Rs 1977.9. Despite this boost, the stock still lags behind the sector.