From Bricks To Bonds: Foreign Investment, REITs, And The Legal Future Of Indian Real Estate
- IJLLR Journal
- Oct 4
- 3 min read
Mahek Harichandan, Fox Mandal & Associates
ABSTRACT
Real estate in India has long been characterized as a paradoxical sector: simultaneously a symbol of prosperity and a repository of risk. Historically, it has carried the reputation of being a high-risk, high-return asset class, plagued by endemic challenges such as regulatory opacity, fragmented land ownership structures, information asymmetries, and prohibitive capital requirements. Investors ,both domestic and foreign , have traditionally approached the sector with caution, given the prevalence of speculative practices, limited transparency in land records, and the absence of uniform dispute resolution mechanisms.
Yet, over the last two decades, the landscape has undergone a profound transformation. The progressive liberalization of Foreign Direct Investment (FDI) policy, coupled with the emergence of Real Estate Investment Trusts (REITs), has reconfigured the contours of Indian real estate. These developments have not only attracted global pools of capital but have also compelled Indian lawmakers, regulators, and the judiciary to rethink the legal frameworks that govern property, finance, and investor protection. This paper situates itself at the intersection of law, economics, and policy, seeking to unravel the dynamic interplay between foreign investment flows and the institutional evolution of India’s real estate markets. It begins with a detailed examination of the trajectory of India’s FDI policy, tracing its evolution under the Foreign Exchange Management Act (FEMA) and the successive Reserve Bank of India (RBI) circulars that have gradually expanded the ambit of permissible investment. Special attention is paid to the nuanced distinction between permissible construction development projects and the continuing prohibition on investment in “real estate business” simpliciter or trading in completed assets—an area where ambiguity in regulatory drafting has often led to litigation and interpretive challenges.
The second prong of analysis turns to Real Estate Investment Trusts (REITs), introduced through the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014. REITs represent the financialization of Indian real estate—converting physical “bricks” into tradable “bonds.”
The paper interrogates the legal architecture of REITs, with emphasis on structural design (sponsor, manager, trustee model), disclosure obligations, taxation regimes, and investor safeguards. Particular focus is placed on the pass-through taxation framework and its subsequent amendments, which remain central to attracting global institutional investors. In constructing its arguments, the paper draws upon comparative insights from Singapore and the United States, two jurisdictions that have successfully leveraged REITs to institutionalize real estate investment. The comparative lens highlights both the promise and the pitfalls of India’s nascent REIT ecosystem—its potential to deepen capital markets, but also its vulnerability to limited liquidity, taxation anomalies, and governance complexities.
Judicial and regulatory pronouncements are analysed as part of this ecosystemic inquiry. Landmark cases, including Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019) which recognized homebuyers as financial creditors under the Insolvency and Bankruptcy Code, and the Supreme Court’s rulings in Vidya Drolia v. Durga Trading (2021) on enforceability of arbitration clauses involving successors and assigns, serve as crucial markers of the judiciary’s evolving approach. Equally instructive is SEBI’s jurisprudence on collective investment schemes, which delineates the boundaries between permissible financial products and disguised real estate fundraising mechanisms. The study ultimately identifies persistent fault lines: the absence of a conclusive land titling system, fragmentation of regulation across states and central agencies, ambiguities in taxation of hybrid structures, and emerging challenges surrounding environmental, social, and governance (ESG) compliance. These gaps, if left unaddressed, risk undermining investor confidence even as capital inflows increase.
In conclusion, the paper argues that India’s real estate sector is undergoing a paradigmatic shift—from being a largely opaque, promoter-driven market to an institutionalized, globally competitive asset class. The infusion of foreign capital through FDI and REITs has not only altered the financing landscape but has also catalysed a deeper conversation on governance, accountability, and sustainability in urban development. Policy reforms that harmonize FDI inflows with sustainable real estate practices, strengthen REIT frameworks, and streamline regulatory fragmentation are essential if India is to realize its aspiration of becoming a mature investment destination.
By situating “bricks” within the logic of “bonds,” the paper underscores the reality that real estate in India is no longer merely a physical asset—it is a financialized, globalized, and legally contested space, whose future will be shaped as much by regulatory choices as by market forces.
Keywords: Foreign Direct Investment, Real Estate Investment Trusts, Indian Real Estate Law, SEBI, FEMA, RERA, Comparative Real Estate Regulation
