SEBI Reclassifies REITs as Equity, Retains Hybrid Tag for InvITs

September 13, 2025

SEBI Reclassifies REITs as Equity to broaden investor participation, boost liquidity, and align India with global best practices

In a sweeping set of capital market reforms announced on 12 September 2025, the Securities and Exchange Board of India (SEBI) approved the reclassification of Real Estate Investment Trusts (REITs) as equity, while retaining the hybrid status of Infrastructure Investment Trusts (InvITs). The decision, hailed as a “progressive and landmark move” by industry leaders, is expected to deepen India’s capital markets, unlock fresh pools of capital, and widen participation in real estate investment products.

Why SEBI Reclassifies REITs as Equity

SEBI said its decision was based on equity-like characteristics of REITs—higher liquidity, greater tradability and closer to global practices. InvITs will remain hybrid as they are private placement vehicles with more stable cash flows but limited liquidity.

Now investments in REITs will be counted within equity allocation limit for mutual funds and eligible for inclusion in equity indices. This will allow deeper participation by institutional investors and may lead to index providers including REITs in their benchmarks.

Strategic Investor Definition Expanded

Along with reclassification of REITs as equity, SEBI expanded the definition of ‘strategic investor’ to make it easier for large, regulated institutions to participate in REITs and InvITs.

The expanded list includes:

Qualified Institutional Buyers (QIBs)
Public financial institutions
Provident and pension funds (PFRDA-registered) with corpus of ₹25 crore or more
Alternative Investment Funds (AIFs)
State industrial development corporations
Family trusts and SEBI-registered intermediaries with net worth of ₹500 crore or more
Middle, upper and top layer NBFCs registered with RBI

This reform is expected to widen the investor base, ease fund flows, and attract long-term institutional capital.

Industry Reaction on REIT Reclassification: “Catalyst to Broaden Investors Participation”

The move has drawn unanimous support from industry stakeholders:

Indian REITs Association (IRA) called the decision “a significant milestone”, noting that it aligns India with global best practices where REITs form part of equity indices. The IRA said the reform will broaden investor participation, improve liquidity, and accelerate growth of the REIT market, which currently stands at about USD 18 billion (~INR 1.58 lakh crore) in market capitalization.
Amit Shetty, CEO of Embassy REIT, India’s first publicly listed REIT, hailed it as a “catalyst to broaden investor participation, enhance liquidity, enable future index inclusion, and strengthen REITs as a mainstream asset class.”
Shirish Godbole, CEO of Knowledge Realty Trust, India’s largest REIT, described it as a “confidence booster”, adding: “This long-awaited move brings regulatory clarity, simplifies fund flows, and makes 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.”

Implications for Investors and Markets

Mutual Fund Participation: Mutual funds can now treat REITs as equity investments. This shift makes REITs more attractive for fund managers and could channel significant inflows from equity-oriented schemes.
Index Inclusion: Stock exchanges are expected to revise eligibility norms, paving the way for REITs to be included in leading equity indices—a move that could bring passive investment flows from index-tracking funds.
Liquidity Boost: The reform is expected to enhance liquidity in REIT units, making them more accessible to retail investors while lowering the cost of capital for developers.
Growth of InvITs: By freeing up the previously shared investment limits, InvITs stand to benefit as well. The exclusivity of their hybrid classification could support stability in infrastructure financing.

Global Context and India’s REIT Market

Globally, REITs are considered an integral part of equity markets. In countries like the U.S. (96% institutional penetration), Singapore (55%), and Japan (51%), REITs are well integrated into indices and attract long-term institutional capital.

India, by contrast, has seen slower adoption, with its REIT market covering only 20% of institutional-grade real estate since the first listing in 2019. However, with this reclassification and three new REITs expected in the pipeline, market capitalization is projected to surpass USD 25 billion (~INR 2.21 lakh crore) by 2030.

A Broader Reform Agenda

The REIT reclassification was part of a broader package of reforms SEBI unveiled in its September board meeting. Other key measures included:

Relaxed IPO dilution norms for large companies.
Higher anchor investor allocation (40% of IPOs).
Single-window clearance for trusted foreign investors like sovereign wealth funds.
Flexible Alternative Investment Fund (AIF) framework for accredited investors.
Revised thresholds for related-party transactions.
Incentives for mutual fund distributors targeting women and non-metro investors.

Together, these reforms reflect SEBI’s push to deepen capital markets, attract domestic and foreign institutional capital, and position India as a progressive, globally aligned investment destination.

Conclusion

By reclassification of REITs as equity and expanding the strategic investor framework, SEBI has delivered a watershed reform for India’s real estate and capital markets. The move is expected to unlock liquidity, broaden participation, reduce costs of capital, and ultimately accelerate the development of a robust REIT ecosystem.

As Amit Shetty of Embassy REIT summed up, this reform is a “landmark move”—one that could finally cement REITs as a mainstream investment asset class in India.

For more details related to IPO GMP, SEBI IPO Approval, and Live Subscription stay tuned to IPO Central.