SEBI’s Consultation on InvIT & REIT Regulations: Key Proposals and Impact Analysis

On February 5, 2026, the Securities and Exchange Board of India (SEBI) released a Consultation Paper proposing targeted changes to the SEBI (Real Estate Investment Trusts) Regulations, 2014 (REIT Regulations) and the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations).

The Paper originates from SEBI’s Department of Debt and Hybrid Securities and reflects inputs from the Indian REITs Association (IRA), Bharat InvITs Association (BIA), and the Hybrid Securities Advisory Committee (HYSAC). Stakeholder comments were invited up to February 26, 2026.

The proposed reforms seek to address four specific friction points that have emerged as REITs and InvITs in India have evolved into mainstream capital market instruments:

  1. Treatment of special purpose vehicles (SPVs) once a PPP concession ends.
  2. Overly restrictive criteria for liquid mutual fund investments by REITs and InvITs.
  3. Unequal regulatory treatment of greenfield exposure between public and private InvITs.
  4. Unclear regulatory boundaries around the use of borrowings when Net Borrowings cross 49% of asset value.

Each of these issues has direct consequences for how InvITs and REITs structure transactions, manage portfolios, and deploy capital across the lifecycle of infrastructure and real estate assets.

Regulatory Context: Investment Framework for REITs and InvITs

REITs and InvITs are governed by a calibrated investment regime which balances investor protection with operational flexibility. Both frameworks impose:

  • A core investment requirement that at least 80% of the value of assets must be deployed in specified qualifying assets (e.g., completed and revenue-generating projects or eligible infrastructure projects).
  • A residual 20% allowance for other prescribed categories of investments, such as liquid instruments, certain equity or debt exposures, and, in the case of public InvITs, limited greenfield exposure.

While this structure was originally crafted to lend predictability and stability to these products, practical experience has highlighted certain rigidities, notably:

  1. SPVs after concession expiry: When PPP projects revert to the concessioning authority, the holding entities cease to meet the technical SPV definition despite continuing legal, tax, and contractual obligations.
  2. Narrow liquid fund universe: High credit risk thresholds for mutual fund investments led to over-concentration in a very small subset of liquid schemes.
  3. Greenfield access gap: Public InvITs could invest up to 10% in greenfield assets, while private InvITs—ironically catering to more sophisticated investors—were denied similar flexibility.
  4. **Ambiguity on “development” for borrowings above 49%😗* Absence of a precise regulatory meaning for “development of infrastructure projects” raised question marks over refinancing, capex and major maintenance spending.

The Consultation Paper tackles these four issues through discrete but inter-linked proposals.

1. Post-Concession SPV Status for InvITs

Existing Issue

Under the InvIT framework, an SPV is defined in Regulation 2(1)(zy) as an entity that holds at least 90% of its assets directly in infrastructure projects. In PPP arrangements, on concession expiry or termination, the project often reverts to the concessioning authority. At that point:

  • The project drops off the SPV’s balance sheet.
  • The SPV technically no longer qualifies as an SPV under the InvIT Regulations.

However, winding up such entities immediately is rarely feasible. SPVs may still be dealing with:

  • Income Tax or GST assessments,
  • Pending disputes and arbitration,
  • Defect liability obligations,
  • Statutory compliances or residual contractual exposures.

This left InvITs with a structural dilemma: they were required to continue holding equity in entities that no longer fulfilled the regulatory SPV criteria, but could not be dissolved in practice.

Proposed Change

SEBI has proposed an amendment to the definition of SPV in Regulation 2(1)(zy) to ensure that an entity which had earlier qualified as an SPV does not immediately lose that status merely because the PPP concession has ended, subject to certain conditions and enhanced disclosures.

The key elements of the proposal are:

  1. SPV status retention with conditions

    • Expiry or termination of the concession agreement would not, by itself, disqualify the company or LLP as an SPV.
    • This relief would apply only where the Investment Manager follows a structured exit or transition plan.

  2. Mandatory exit or redeployment within a defined period
    The Investment Manager would be required, within one year from the later of the following events, to:

    • Exit the investment (sale, liquidation, or winding up); or
    • Acquire a new infrastructure project within the same SPV or through an appropriate restructuring.