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REITs - Eligibility and Structure


We have accumulated a through knowledge about an REIT, its types and a typical portfolio of an REIT. But we are still unaware about what qualifies as an REIT and what is its structure.

This article will focus on bringing to light the eligibility and structure of the REIT.

What qualifies as an REIT?

A trust is classified as an REIT, when –
1. The trust distributes 90% of its income in the form of dividend. 
2. The trust invests 80% of its capital in revenue generating real estate.
3. The trust has 10% of its capital invested in under-construction real estate.
4. The trust should have an asset base of Rs. 500 Crores.
5. Net Asset Value (NAV) of the REIT are updated twice in a financial year.

Structure of an REIT
A Real Estate Investment Trusts is setup as a trust under the Indian Trust Act, 1882. The REIT must be registered with the Securities and Exchange Board of India (SEBI). The trust is governed by SEBI under the SEBI (REIT) Regulations, 2014 and SEBI (REIT)(Amendment) Regulations, 2018.




The REIT has a 3-tier structure –

1. Sponsor - A sponsor is a person/entity that brings in the capital for the REIT in the form of an already established real estate portfolio to commence its operations. On listing of the REIT, the sponsor will retain the majority ownership of the REIT.


The income bearing assets are held by the trust by acquiring a controlling interest in an Indian Company (SPV) from the sponsor.

2. Asset Management Company (AMC) - An AMC is a corporate entity that invests the funds pooled in from investors various income-generating real estate assets. The AMC acts as a fund manager for the trust. 

3. Trustees - The Trustees acts as the legal owner of the trust’s assets. They are also responsible for ensuring that the trust adheres to all the laws and regulations and that the funds are invested in the interest of the unit holders.

A trust must fulfil the above-mentioned conditions to qualify as an REIT. The REIT has a structure like that of a mutual fund.

The next article will look into how an investor can invest into an REIT, the Pros and Cons of investing an a REIT and the taxation of income earned from the REIT.
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