Markets regulator Sebi has proposed allowing Real Estate Investment Trusts (REITs) to invest in under-construction real estate projects without taking a controlling interest, a move aimed at helping them build a pipeline of future income-generating assets.

Under the proposal, REITs and Infrastructure Investment Trusts (InvITs) would be allowed to take minority stakes in under-construction projects within the existing limits prescribed for such investments.

“Investing a minority stake in under-construction assets would enable REITs and InvITs to build a pipeline of stable, revenue-generating assets while minimising exposure to construction-related risks,” SEBI said in its consultation paper.

Remote infrastructure may count as real estateSebi has also proposed recognising remote common infrastructure, including captive renewable energy facilities, as “real estate” under REIT regulations.Currently, REIT regulations allow investment in common infrastructure even when it is not located alongside a REIT project.

However, the existing definition of real estate refers to common infrastructure linked to composite real estate projects, creating a regulatory gap for facilities located elsewhere.

The proposed change could help commercial properties use geographically distant captive renewable energy facilities that are functionally integrated with the real estate assets.SEBI has also proposed removing a separate provision that allows REITs to invest in companies exclusively holding common infrastructure, as the provision would become redundant if such infrastructure itself is classified as real estate.

Changes proposed for REITs and InvITsSEBI has proposed several other measures to ease regulatory requirements for REITs and InvITs.For privately placed InvITs, the regulator has proposed reducing the cooling-off period for offer-for-sale transactions from 12 weeks to eight weeks. SEBI noted that these InvITs face structural liquidity constraints because of their high trading lot size of Rs 25 lakh, which limits participation largely to institutional investors, corporates and high-net-worth individuals.

The regulator has also proposed changes to the exit-offer framework when a sponsor exits a REIT or InvIT. It has suggested defining “dissenting unitholders” as those who vote against a proposed resolution and clarifying which sponsor would provide the exit option when one sponsor leaves a REIT or InvIT with multiple sponsors.

If public unitholding falls below the prescribed minimum because of an exit offer, the REIT or InvIT would have to restore the minimum public holding within one year.

Sebi has further proposed changing the approval threshold for certain matters. Instead of being based on the value of units, approval would require votes in favour to account for at least 75% of the total votes cast on the resolution.

It has further has invited public comments on the proposals until August 27.