SEBI REIT Amendment 2026: Impact of Common Infrastructure Classification on REIT Investment Limits

Summary: The SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2026, published in the Official Gazette on 15 October 2026, have significantly expanded the regulatory treatment of common infrastructure owned by Real Estate Investment Trusts (REITs). By deleting the words restricting common infrastructure to composite real estate projects, industrial parks and Special Economic Zones from Regulation 2(1)(zi), SEBI has enabled qualifying common infrastructure to be recognised as real estate property irrespective of whether it is located within or outside a REIT project. The amendment complements the existing definition under Regulation 2(1)(ga), which includes power plants, heating and cooling systems, water treatment facilities, waste processing plants and other infrastructure exclusively serving a REIT, its holding companies or special purpose vehicles, subject to specified conditions for surplus supply to utilities. SEBI has simultaneously omitted Regulation 18(5)(k), which previously provided a separate investment route for companies exclusively holding common infrastructure within the 20% investment category. Consequently, qualifying off-site infrastructure may now be considered under the ordinary real estate investment framework, including the minimum 80% allocation under Regulation 18(4), provided the applicable completion, rent or income-generation and holding-structure conditions are satisfied. However, the amendment does not automatically reclassify every infrastructure facility into the 80% category. REIT managers must independently assess income generation, accounting consolidation, asset valuation, SPV eligibility and compliance with Regulation 18(6), which requires at least 51% of consolidated revenue to arise from specified rental, leasing or incidental income. Internal charges eliminated on consolidation cannot independently support this revenue threshold. The amendment can improve investment flexibility by releasing capacity within the 20% category where existing infrastructure investments validly qualify for reclassification. Nevertheless, valuation safeguards, transaction approvals, title verification, disclosure requirements, distribution obligations and ongoing regulatory compliance continue to apply.

1. Introduction

A real estate property needs more than a building to function effectively. Power supply, cooling systems, water treatment and waste processing facilities support its day-to-day operations. As per Real-estate Investment Trust regulations 2014 (REIT regulations) these supporting facilities are called as common infrastructure. Considering the role of these facilities for functioning of real estate property, a REIT is allowed to invest in such facilities in spite of they being classified as infrastructure wherein REIT is not ordinarily allowed to invest.

Up till now, As per REIT regulations only those common infrastructure facilities which were co-located within a REIT project could only be classified as real estate property. However, through an amendment dated 15th October 2026 this position was changed and now common infrastructure facility whether co-located within REIT project or not, is classified as real estate property.

On face of it This changeappears to be just a deletion of some words from definition of real estate property. Yet it has deep impact on portfolio classification of REITs owning common infrastructure facilities. In this article we shall make an attempt to decipher this impact on portfolio classification and compliance requirements.

2. What Has Changed?

2.1 Amendment to the Definition of Real Estate Property

Regulation 2(1)(zi) defines “real estate” or “property”. Although infrastructure assets are generally excluded, the definition contains certain exceptions. Before the amendment, one of these exceptions referred to common infrastructure “for composite real estate projects, industrial parks and SEZ”.

SEBI has removed these qualifying words (for composite real estate projects, industrial parks and SEZ). Consequently, the inclusion of common infrastructure as property is no longer restricted to the common infrastructure being co-located with any existing REIT project.

2.2 Scope of Common Infrastructure under Regulation 2(1)(ga)

Any thing qualifying as common infrastructure will now be considered as property, and As per Regulation 2(1)(ga), common infrastructure includes power plants, district or retail heating and cooling systems, water and waste treatment or processing plants, and other facilities incidental to the real estate business. Such facilities must exclusively supply or cater to, or be exclusively consumed by, the REIT, its HoldCos or SPVs, whether located within or outside a REIT project. Unconsumed surplus may be supplied to a central or state grid or utility.

2.3 Omission of Regulation 18(5)(k)

At the same time, SEBI has omitted Regulation 18(5)(k). reg 18(5) provides list of such options wherein REIT can invest an amount maximum up to 20% of REIT assets. Clause K of this regulation provided for investment in company owning common infrastructure. Deletion of this clause means that the maximum cap of 20% applicable to investment in common infrastructure is no more applicable.

The two changes should be read together. Qualifying common infrastructure can now be assessed under the ordinary property investment framework, without relying on the deleted common infrastructure company provision.

3. Impact on Regulation 18: From the Separate 20% Route to Potential Inclusion in the 80% Category

3.1 Investment Classification under Regulations 18(4) and 18(5)

Regulation 18 broadly divides a REIT’s investments into two categories. Under Regulation 18(4), at least 80% of the value of REIT assets must be invested in completed and rent and/or income-generating properties. Regulation 18(5) permits investment of not more than 20% in specified other assets, including certain under-construction and non-rent-generating properties.

Before its omission, Regulation 18(5)(k) provided a dedicated route for investment in companies exclusively holding common infrastructure within the 20% category. The deletion of this clause, together with the broader recognition of common infrastructure as property, changes the basis on which such investments are assessed.

3.2 Eligibility of Common Infrastructure for the 80% Category

SEBI’s consultation paper expressly explained that recognising all qualifying common infrastructure, whether co-located or remote, as real estate would make the separate investment provision under Regulation 18(5)(k) redundant. This supports treating such investments under the same framework as other real estate properties, including eligibility for the 80% category where the completion, rent and/or income-generation requirements and other applicable conditions under Regulation 18(4) are satisfied.

A qualifying common infrastructure asset can now be considered for inclusion in the 80% category under Regulation 18(4). However, this is subject to the asset satisfying the other requirements of that provision, including completion, rent and/or income generation and the applicable rules for investments held through HoldCos or SPVs.

3.3 Inclusion in the 80% Category Is Not Automatic

The amendment therefore creates eligibility for consideration under the 80% category; it does not provide automatic inclusion. For example, an under-construction facility cannot be included in that category merely because it qualifies as common infrastructure. Similarly, where a facility produces only captive cost savings, the REIT must examine the basis on which it could be regarded as income-generating. Internal charges between group entities also require careful assessment because they may be eliminated in consolidated accounts.

4. Why Does This Matter Commercially?

4.1 Potential Release of Capacity within the 20% Category

Where an existing common infrastructure investment validly qualifies for the 80% category, its reclassification may release capacity within the 20% category for other permitted investments.

4.2 Illustration of Portfolio Reclassification

For example, assume a REIT has assets valued at ₹10,000 crore, including a ₹300 crore common infrastructure investment previously included under Regulation 18(5)(k). If that investment satisfies all requirements for inclusion under Regulation 18(4), its reclassification could release ₹300 crore of capacity within the 20% category.

This does not increase the REIT’s total asset value. It changes the allocation between the two investment categories.

4.3 Continuing 51% Consolidated Revenue Requirement

The REIT must also continue to comply with Regulation 18(6), which requires at least 51% of consolidated revenue, excluding gains from property disposals, to arise from rental, leasing, letting or income incidental to leasing. While calculating this 51%, the REITs have to be mindful that the income earned by common infrastructure properties internally from SPVs etc. has to be set off while undertaking consolidation at REIT level and hence cannot be considered in calculation of 51%.

5. Other Compliance Implications

Common infrastructure co-located within composite real estate projects, industrial parks and SEZs was already included within the definition of “property”. The following implications therefore concern off-site common infrastructure now brought within that definition. General obligations already applicable to these investments as REIT assets continue.

5.1 Valuation Requirements

Valuation requirements: Apply the property acquisition and disposal safeguards under Regulations 19 and 21, including transactions through HoldCos or SPVs. Valuations should consider useful life, contracts, operating costs, approvals and dependence on the properties served. Periodic valuation obligations continue.

5.2 Offer-Document and Periodic Disclosures

Offer-document and periodic disclosures: Offer documents, annual reports and half-yearly reports should reflect the correct asset classification and investment allocation, with a clear basis for reclassification. Disclose relevant ownership, location, service arrangements, income model and risks. Annual disclosures on surplus supply and utilisation of credits or payments continue.

5.3 Title, Insurance and Asset Management

Title, insurance and asset management: Review legal and marketable title, enforceability of material contracts, insurance, maintenance and safety. For off-site facilities, verify land and access rights and arrangements connecting them to REIT properties. Sector-specific approvals remain necessary.

5.4 Transaction Approvals and Holding Periods

Transaction approvals and holding periods: Assess purchases, sales and related party arrangements against applicable valuation and unitholder approval requirements. Property-disposal thresholds and minimum holding periods apply where their conditions are met; classification as property does not itself require approval for every transaction.

5.5 Holding Structure and SPV Eligibility

Holding structure and SPV eligibility: Qualifying common infrastructure can count towards the requirement that an SPV hold at least 80% of its assets directly in properties. Other ownership and activity conditions remain applicable; deletion of Regulation 18(5)(k) does not automatically make an infrastructure company an eligible SPV.

5.6 Cash Flows and Distributions

Cash flows and distributions: Apply the relevant distribution requirements, including reinvestment or distribution of property-sale proceeds. Regulatory classification does not determine accounting treatment: internal supply charges do not create additional consolidated revenue, and captive savings are not separately recognised as income.

6. What Should REITs Holding Off-Site Infrastructure Do Now?

For REITs with off-site common infrastructure in their portfolios, the immediate step is to review the regulatory classification of each facility. The review should establish whether the asset satisfies the common infrastructure definition, whether its holding structure remains permissible and whether it meets the completion and income-generation requirements for the 80% category.

Where reclassification is justified, the manager should document the basis, reassess the investment allocation and reflect the position in relevant reports and disclosures. The trustee, valuer and auditor should be involved as appropriate to their respective responsibilities. Any resulting capacity within the 20% category can then be considered when planning further investments.

The amendment better aligns the investment framework with the way REIT properties are supported in practice, including through facilities situated elsewhere. Its benefit will depend on a careful assessment of each asset. For REITs, the opportunity is greater investment flexibility, supported by clear classification, reliable documentation and continued compliance.

Rutuja Umadikar- Deputy Manager