Strategic Management and Corporate Finance · Real Estate Investment Trusts

REIT Investment Conditions and Asset Restrictions under SEBI Regulations

Updated 11 October 2026

Under the SEBI (REITs) Regulations, 2014, a REIT must keep at least 80% of its asset value in completed, rent-generating properties. The rest can go into permitted assets such as under-construction property. Consolidated borrowings cannot exceed 49% of asset value, and above 25% needs a AAA rating and unitholder approval.

Understand Investment Conditions and Asset Restrictions

A REIT pools money from unitholders and invests it in income-producing real estate. SEBI does not let the manager invest freely. The investment conditions protect unitholders by keeping the portfolio mostly in stable, rent-earning property and by limiting risk.

The rules fall into three groups. First, what a REIT may hold: real estate directly or through a holding company or special purpose vehicle (SPV), plus a limited set of other assets. Second, how the portfolio must be balanced: a floor for completed, rent-generating property and a cap on under-construction and other assets. Third, how much it can borrow: a ceiling on leverage, with a tighter trigger for rating and approval.

Think of the 80% rule as the core of a REIT. A REIT is meant to be an income vehicle, so most value must already earn rent. The remaining 20% gives room for growth, such as under-construction projects, listed or unlisted debt of companies or body corporates in the real estate sector, mortgage-backed securities, equity shares of companies listed on a recognised stock exchange in India that derive not less than 75% of their operating income from real estate activity, government securities, money market instruments and cash equivalents. A REIT is not allowed to invest in vacant land or agricultural land, or in mortgages other than mortgage-backed securities.

The borrowing rule works the same way. Debt can raise returns but also raises risk. So SEBI measures borrowings at the consolidated level, meaning the REIT, its holding companies and its SPVs together, and sets a cap against the value of REIT assets. Check the current text of Regulations 18 and 20 and the SEBI circulars before the exam, because limits have been amended over time.

A REIT must also meet a minimum size when it registers. The value of REIT assets must be at least ₹500 crore. It also faces a minimum holding period for properties it buys, so that the manager cannot trade assets for quick gains.

Key rules to remember

Completed and rent-generating floor: Completed and rent-generating property ≥ 80% of value of REIT assets; The balance of up to 20% may go into other permitted assets such as under-construction property, debt of real estate sector companies, mortgage-backed securities, equity shares of listed companies deriving at least 75% of operating income from real estate, government securities and money market instruments.
Prohibited investments: No vacant land, no agricultural land, no mortgages (except mortgage-backed securities); Learn this as a short negative list. Exam questions often hide one of these in the facts.
Minimum asset value: Value of REIT assets at registration ≥ ₹500 crore; A registration eligibility condition. It is separate from the ongoing percentage limits on investment and borrowing.
Minimum holding period: Completed property to be held for at least 3 years from purchase; Under Regulation 18, a property can be sold earlier only with unitholder approval, where votes cast in favour are at least 75% of votes cast. Check the current text of Regulation 18 before the exam.
Borrowing cap: (Consolidated borrowings + deferred payments − cash and cash equivalents) ≤ 49% of value of REIT assets; Consolidated means REIT, holding companies and SPVs together.
Rating and approval trigger: Net borrowings > 25% of asset value ⇒ credit rating of AAA (or equivalent) from a registered credit rating agency and unitholder approval; Under Regulation 20, the unitholder approval must be obtained in the manner the Regulations prescribe. Check the current voting threshold in the Regulations and quote it as written. This trigger sits below the 49% hard cap.

How to solve Investment Conditions and Asset Restrictions questions

Use one method for both theory and case questions. It stops you from mixing up the two sets of limits.

1Identify the value of REIT assets given in the question. Every limit is a percentage of this figure, so write it down first.
2List what the REIT holds: completed rent-generating property, under-construction property, other permitted assets, and anything prohibited such as vacant land.
3Test the 80% floor. Divide completed and rent-generating property by total asset value and compare it with 80%.
4Compute net borrowings: consolidated borrowings plus deferred payments, less cash and cash equivalents. Express this as a percentage of asset value.
5Compare with the limits: above 49% is a breach; above 25% but within 49% needs a AAA rating and unitholder approval.
6Check size and holding period if the facts mention them: ₹500 crore asset value at registration, and three years minimum holding.
7Write the answer as provision, application of facts, then a clear conclusion on whether the REIT complies and what it must do.

Quickest way: Three-number check

When to use it: Use this when a case gives you asset value, property split and debt figures and you have limited time.

Calculate 80% of asset value. This is the floor for completed and rent-generating property. The balance of up to 20% is the room for other permitted assets.
Calculate 25% and 49% of asset value for borrowings. The 25% is the rating and approval trigger and 49% is the hard cap.
Convert net debt into a percentage and place it in a band: up to 25% is fine, above 25% to 49% needs rating and approval, above 49% is a breach.
State the conclusion in one line each for investment mix and borrowing.

Common mistakes in Investment Conditions and Asset Restrictions

Treating the 49% limit as the only borrowing rule.
Students remember the cap and forget the 25% trigger.
Fix: Remember two levels: above 25% needs a AAA rating and unitholder approval, and 49% is the absolute ceiling.
Calculating borrowing limits on the REIT's own debt alone.
Students ignore the word consolidated.
Fix: Add the borrowings and deferred payments of the REIT, holding companies and SPVs, then deduct cash and cash equivalents.
Applying the 80% rule to total revenue or to the number of properties.
The rule is remembered as a bare percentage.
Fix: It applies to the value of REIT assets. Use values, not counts or income.
Allowing under-construction property to count as completed and rent-generating.
Students focus on the future rent potential.
Fix: Only completed property that is already generating rent counts toward the 80% floor. Under-construction property belongs to the balance of up to 20%.
Forgetting the prohibited assets.
Students study only what is permitted.
Fix: Remember the negative list: vacant land, agricultural land and mortgages other than mortgage-backed securities.
Mixing up registration size with investment limits.
Both are numbers linked to asset value.
Fix: Keep ₹500 crore as an eligibility test at registration, and treat the percentage limits as ongoing investment conditions.

Worked examples

Example 1

Bharat Prime REIT has REIT assets valued at ₹2,000 crore. Of this, completed and rent-generating offices are worth ₹1,500 crore, an under-construction tower is worth ₹350 crore and government securities are worth ₹150 crore. Does it meet the 80% condition?

Show the solution

Total value of REIT assets = ₹2,000 crore.
Required completed and rent-generating property = 80% × ₹2,000 crore = ₹1,600 crore.
Actual completed and rent-generating property = ₹1,500 crore, which is 75% of the total.
₹1,500 crore is less than ₹1,600 crore, so the floor is not met. The shortfall is ₹100 crore.
The under-construction tower and government securities together total ₹500 crore, which is 25% of asset value. This is more than the 20% ceiling for all non-completed and other permitted assets taken together. The 20% is a combined limit, not free room for under-construction property alone, because under-construction property also has its own sub-limit under Regulation 18.

Answer: The REIT does not meet the 80% condition. It holds only 75% in completed and rent-generating property, a shortfall of ₹100 crore, and it must rebalance.

Example 2

Konark Realty REIT has asset value of ₹2,000 crore. Consolidated borrowings of the REIT and its SPVs are ₹900 crore, deferred payments are ₹50 crore and cash and cash equivalents are ₹100 crore. Examine whether it may carry this debt.

Show the solution

Net borrowings = ₹900 crore + ₹50 crore − ₹100 crore = ₹850 crore.
Net borrowings as a share of asset value = 850 ÷ 2,000 = 42.5%.
Hard cap = 49% × ₹2,000 crore = ₹980 crore. ₹850 crore is below it, so the cap is not breached.
Trigger level = 25% × ₹2,000 crore = ₹500 crore. ₹850 crore is above it.
Because borrowings exceed 25%, the REIT needs a credit rating of AAA or equivalent from a registered credit rating agency and unitholder approval under Regulation 20, obtained in the manner the Regulations prescribe.

Answer: Net borrowings are ₹850 crore, or 42.5% of asset value. This is within the 49% cap, but because it exceeds 25%, the REIT may carry it only if it holds a AAA (or equivalent) rating and has obtained unitholder approval in the manner the Regulations prescribe.

Exam tips

Write the percentages with their base every time: 80% of the value of REIT assets, 49% of the value of REIT assets. Examiners look for the base.
In case questions, calculate first and then conclude. A neat table-free list of figures earns marks for analysis even if the conclusion is wrong.
Memorise the negative list (vacant land, agricultural land, non-MBS mortgages) as it is an easy mark in short notes.
Say that limits are under the SEBI (REITs) Regulations, 2014 as amended, and add that the manager must disclose compliance to unitholders. This shows practical awareness.
If asked to compare with InvITs, only do so if the question asks. Keep the REIT limits separate to avoid mixing figures.

Practice questions from Real Estate Investment Trusts

Investment Conditions and Asset Restrictions: frequently asked questions

What is the 80% rule for REITs?

At least 80% of the value of REIT assets must be invested in completed and rent-generating properties. The balance of up to 20% may go into other permitted assets such as under-construction property, mortgage-backed securities, debt of real estate sector companies, equity shares of listed companies deriving at least 75% of operating income from real estate, government securities and money market instruments.

What is the REIT borrowing limit under SEBI rules?

Consolidated borrowings and deferred payments, net of cash and cash equivalents, cannot exceed 49% of the value of REIT assets. If they exceed 25%, the REIT needs a AAA (or equivalent) credit rating and unitholder approval under Regulation 20, obtained in the manner the Regulations prescribe. Check the current voting threshold in the Regulations before the exam.

What is the minimum asset value for a REIT?

The value of REIT assets must be at least ₹500 crore at the time of registration. This is an eligibility condition and is separate from the ongoing percentage limits on investment and borrowing.

Is there a holding period for REIT properties?

Yes. Under Regulation 18, a REIT must hold a property for a minimum period of three years from purchase. Selling earlier needs unitholder approval, where votes cast in favour are at least 75% of votes cast.