First off, what are REITs and INvITs?
Simply put, a Real Estate Investment Trusts (REITs) is a business trust that owns, operates and manages properties like hospitals, commercial space, hotels and more to generate income. The underlying idea is to invest in real estate that is income-generating. REITs are allowed to allocate only 20% of their investments to under-construction assets.
However, an Infrastructure Investment Trust invests in long-term projects related to roadways, pipelines, power transmissions and other crucial infrastructural setup. Thus, they are ideal from a 15-20 year investment horizon.
What is SEBI saying now?
SEBI has directed all INvITs and REITs to henceforth issue units only in dematerialised (demat) form. Additionally, from now on, it has also asked both REITs and INvITs to record their securities in respective holding companies and special purpose vehicles (SPVs) exclusively in demat form.
Also, existing securities held by REITs/INvITs should be virtually recorded and dematerialised by June 30, 2023. Compliance to this will be ensured by the investment manager.
What is an SPV?
A special purpose vehicle (SPV) is an entity that is created for a specific purpose (majorly acquisition and management of real estate projects). To classify as a SPV, an REIT/InvIt holds a minimum of 50% of stake in it. Once its purpose is served, it is automatically dissolved.