Equity markets saw lacklustre trading on Monday morning with the BSE Sensex and NSE Nifty50 trading flat to negative. However, real estate investment trusts (REITs) saw some positive momentum. Embassy Office Parks REIT, Nexus Select Trust, and the recently listed Knowledge Realty Trust gained more than 1 per cent in morning trading. Brookfield India REIT and Mindspace Business Parks REIT were also trading in the green.
REITs are like a company that owns and operates income-generating real estate assets. In India, barring Nexus Select Trust that manages retail assets like shopping malls, the other large listed REITs own and operate large commercial office parks.
REITs had been gaining investor interest in recent months due to rising office space demand, especially from Global Capability Centres. The latest driver for REITs though is the decision by the Securities and Exchange Board of India to grant equity status to REITs. Up until now, REITs were categorised as hybrid securities.
On Friday, the market regulator approved amendments to its regulations, re-classifying REITs as equity, while it retained the hybrid classification for infrastructure investment trusts (InvITs).
“The re-classification 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,” SEBI said.
This move by the regulator is expected to bring in more inflows into REITs from mutual funds and specialised investment funds. Earlier, given their categorisation as hybrid equity, flows were restricted.
Until now, a mutual fund scheme could only invest up to 10 per cent of its net asset value in units of REITs and InvITs. Now, investments into REITs will fall within the allocation limit for equity instruments. Furthermore, this move to classify REITs as equity also opens the door for them to be included in market indices at some point in time, which should also attract more flows.
REIT executives had been stressing on the need for this move to open up more institutional investments in the asset class. Last week, Preeti Chheda, the CFO of Mindspace Business Parks REIT had pointed out in an interaction how even insurance companies couldn’t put more than 3 per cent of their AUM into REIT units.
Welcoming SEBI’s decision, the Indian REITs Association said the step marked a significant milestone in strengthening the REIT ecosystem in India and aligned with global best practices where REITs are a part of equity indices.
“This decision will contribute to enhancing the depth of the REIT market and accelerating the growth of these instruments in India,” it said.
Classifying REITs as equity would further strengthen them as a mainstream investment asset class, said Amit Shetty, CEO of Embassy REIT.
“We see this as a catalyst to broaden investor participation, enhance liquidity and enable future index inclusion,” said Shetty.
The Association of Mutual Funds of India has also welcomed this move by SEBI.
“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,” said Venkat Chalsani, chief executive of AMFI.
According to Shobhit Agarwal, CEO of Anarock Capital Advisors, India’s REITs have already demonstrated strong fundamentals with distribution yields averaging 6-7 per cent, well above many mature markets like the USA where yields are around 2.5-3.5 per cent and Singapore at around 5-6 per cent.
With three more REITs expected over the next four years, India is expected to cross $25 billion in market capitalisation by 2030, according to a study by Anarock and real estate body CREDAI.
“The strength of the Indian commercial office market remains the backbone of this growth. In the first half of 2025 alone, net absorption touched 27 million square feet, already more than half of the full-year tally for 2024. Out of 520 million square feet of Grade A REIT-worthy stock, just 32 per cent has been listed, underscoring the vast headroom for expansion,” said Agarwal.
Institutional penetration of REITs currently stands at 20 per cent of India’s real estate, significantly lower than global benchmarks—55 per cent in Singapore and 96 per cent in the USA—pointing to immense untapped opportunity, he stated.
