Small investors to get a bigger say in their REIT, InVIT holdings

• Follow

Days after SEBI proposed regulating online platforms that offer fractional ownership of real-estate, it is moving to offer special rights to REIT and InVIT unitholders.

As per its new consultation paper, the regulator has floated the idea of self-sponsored REITs/InVITs, along with  allowing some unitholders the right to nominate their representatives on the board. Additionally, it has also put forward the idea of levying the stewardship code, which entails institutional investors to remain transparent with the shareholders on such representatives.

What are REITs and InVITs?

Simply put, REITs and InVITs are trusts where people pool their funds to invest directly either in rent-generating, commercially feasible real estate (REITs), or cash-flow rich infrastructure projects (InVITs). A minimum investment of Rs 10,000-15,000 is required for both these investment avenues. Earlier this figure was Rs 50,000 for REITs and Rs 1,00,000 for InVITs

How is the structure now? What will change?

Here is how the current regulations govern REITs and InVITs. There are no rules that allow granting such special voting/nomination rights to unitholders. Sponsors are allowed to exit from trust, subject to certain conditions set by SEBI.

However, if the proposed changes come to effect, here’s what will happen? Special rights will be granted to certain unitholders by way of an offer document. This could include the right to nominate directors on the board of manager or investment manager or the right to nominate a member to the unitholder council. The minimum unit holding needed for both these cases is 10%. The purpose is to increase unitholders’ say in the overall decision making process.

Sponsor declassification would become tough. It would only be possible in case a new sponsor is inducted, or the trust changes into a self-sponsored one.

Former SEBI faculty Anil Upadhaya notes that these changes are more important when it comes to InVITs, since they demand more significant investment.