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Archive / Investment Adviser (Level 1) / Overview of Alternative Investment Funds (AIFs)
nism-series-xa-reit-borrowing-leverage-limit-49-percent[ INVESTMENT ADVISER (LEVEL 1) ]

Under SEBI (Real Estate Investment Trusts) Regulations, what is the maximum permissible 'Leverage / Borrowing Limit' for a listed REIT?

[ A ]Aggregate borrowings of the REIT (net of cash) shall not exceed 49% of the value of the consolidated REIT assets, requiring credit rating and unitholder approval if debt exceeds 25%.[ CORRECT ]
[ B ]Maximum 95% leverage.
[ C ]Unlimited leverage up to 100 times asset value.
[ D ]Zero borrowings; REITs are prohibited from taking any debt.
Takeaway

Under SEBI REIT Regulations, a listed REIT's aggregate net borrowings cannot exceed 49% of the value of its consolidated assets, with credit rating and unitholder approval required if debt crosses 25% of asset value.

Derivation
REITs generate returns primarily from rental yield on real estate assets held for the long term, and unrestrained leverage would expose unitholders to solvency risk if property values or occupancy fell during a downturn. SEBI's prudential framework therefore sets a hard ceiling of 49% net borrowings to asset value, with an additional intermediate checkpoint at 25% requiring a credit rating and unitholder approval to add further debt beyond that point — a graduated, two-tier governance structure rather than a single blanket limit. The exam tests recall of both the hard 49% ceiling and the intermediate 25% governance trigger, as candidates often remember only the headline number.
Why the others fail
B — Maximum 95% leverage.
95% leverage would leave a REIT with negligible equity cushion against property value declines and far exceeds SEBI's statutory 49% aggregate borrowing ceiling for REITs.
C — Unlimited leverage up to 100 times asset value.
Unlimited leverage up to 100x asset value contradicts SEBI's prudential framework, which strictly caps net REIT borrowings at 49% of consolidated asset value.
D — Zero borrowings; REITs are prohibited from taking any debt.
REITs may take on prudential debt up to the 49% ceiling to enhance unitholder yield; a complete prohibition on any borrowings contradicts the actual regulations.