SEBI Eases Lock-In Norms for REIT Sponsors: Only 15% of Units Now Under 3-Year Lock-In

Real Estate Investment Trusts (REITs) are investment vehicles that pool funds from investors to purchase, manage, and operate income-generating real estate assets. These trusts offer a way for individuals to invest in large-scale commercial properties without actually owning them directly.

Sponsors of REITs play a foundational role by contributing initial assets and often holding a significant portion of the trust’s units. Traditionally, a portion of these units was subject to a lock-in period to ensure long-term commitment and alignment of interests between sponsors and public investors.

Key Regulatory Change by SEBI

In a recent move, the Securities and Exchange Board of India (SEBI) has reduced the proportion of units that REIT sponsors are required to keep under a 3-year lock-in period. Now, only 15% of the preferential units allotted to sponsors must remain locked in for 3 years, down from the earlier 25%.

This regulatory amendment, which came into effect immediately, is aimed at simplifying the compliance process and promoting ease of doing business in the capital markets.

Advisory Committee’s Recommendation

The decision to reduce the lock-in requirement was based on the recommendation of the Hybrid Securities Advisory Committee (HySAC). The committee evaluates and advises SEBI on policy matters related to hybrid securities, including REITs.

By implementing this recommendation, SEBI signals a progressive approach towards balancing regulatory safeguards with operational flexibility for REIT sponsors.

Clarification on Unit Transfers Within Sponsors

Alongside the reduction in the lock-in percentage, SEBI has also clarified the rules regarding the transfer of units between sponsors.

• Units under lock-in can be transferred from one sponsor to another.

• Such transfers must occur within the sponsor group entities only.

• The transferee will be bound by the remainder of the original lock-in period and cannot transfer the units further until the lock-in period expires.

This clarification ensures that while flexibility is granted, the integrity of the lock-in period is maintained to uphold investor confidence.

Conclusion: Regulatory Streamlining in Focus

SEBI’s amendment marks a step forward in streamlining REIT regulations, with a focus on enhancing flexibility for sponsors while preserving necessary checks. Though reduced, the lock-in requirement continues to serve its purpose of ensuring sponsor commitment.

As REITs continue to gain traction among Indian investors, such measures reflect SEBI’s ongoing efforts to foster a robust and business-friendly regulatory environment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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