What is a REIT and Why Should You Consider Investing in One?

Real estate has long been a preferred asset class for Indian investors seeking income stability and long-term capital growth. But investing in physical property comes with high capital requirements, illiquidity, and ongoing management responsibilities. That’s where Real Estate Investment Trusts (REITs) offer an alternative.

REITs allow investors to access professionally managed, income-generating commercial real estate assets—such as office parks, malls, and logistics hubs—without owning or operating any property themselves. With strong regulatory oversight, growing investor participation, and a maturing market structure, REITs in India are gradually becoming a mainstream component of investment portfolios.

Understanding REITs in India

What is a Real Estate Investment Trust (REIT)?

A REIT is a SEBI-regulated investment vehicle that owns or operates income-producing real estate. Structured similarly to mutual funds, REITs pool capital from multiple investors and deploy it across commercial real estate assets. These assets generate rental income, a portion of which is distributed to investors, while also offering the potential for long-term capital appreciation.

The REIT structure consists of a Sponsor, a Manager, and a Trustee. The Sponsor sets up the REIT and contributes assets. The Manager oversees operations and investment decisions. The Trustee acts on behalf of unitholders, ensuring compliance and transparency.

How REITs Compare to Traditional Real Estate Investing

Unlike direct property investment, which requires high capital, extensive due diligence, and asset management, REITs offer a fractional ownership model. Units can be bought and sold on stock exchanges, just like shares. This provides liquidity, lower entry barriers, and regulated access to institutional-grade real estate. Investors are also not exposed to property-specific risks like vacancy, tenant defaults, or maintenance overheads, as these are managed by professional asset managers.

The Benefits of REIT Investing

• Income Distribution Mandate

REITs are required by regulation to distribute at least 90% of net distributable cash flows to unitholders. This ensures consistent income generation and aligns REITs with the interests of yield-seeking investors. The distributions typically come from rental income generated by leasing office or retail space to tenants.

As of FY2025, the four listed Indian REITs have collectively distributed over ₹22,800 crore—more than the entire Nifty Realty Index combined.

• Liquidity and Accessibility

REITs are listed and traded on Indian stock exchanges like NSE and BSE. In 2023, SEBI reduced the minimum trading lot size to 1 unit, making REITs more accessible for retail investors. The number of retail participants in REITs has grown from around 6,000 in 2019 to over 2.6 lakh by March 2025, demonstrating increased trust and awareness.

This ease of buying and selling provides a level of liquidity that is absent in traditional real estate investments, where transactions are often long, opaque, and expensive.

• Diversification and Professional Management

REIT portfolios typically comprise multiple assets spread across geographies and sectors, reducing concentration risk. For instance, REITs may hold office spaces in Bengaluru, retail malls in Mumbai, and mixed-use campuses in Pune.

These assets are managed by experienced professionals who oversee leasing, maintenance, tenant relationships, and upgrades. The governance structure includes AAA credit ratings, third-party valuations, and inclusion in global indices such as FTSE, MSCI, and S&P, ensuring accountability and transparency.

Types of REITs Available for Indian Investors

• Equity REITs vs Mortgage REITs

Globally, REITs are categorized as Equity REITs and Mortgage REITs. Equity REITs own and manage physical properties, while Mortgage REITs invest in property-backed loans and earn through interest.

India currently only permits Equity REITs under SEBI regulations. These REITs derive income primarily from leasing and operating commercial properties such as business parks, malls, and hospitality assets.

• Sector-Specific Assets Under REITs

REITs in India primarily focus on Grade A office space and organized retail. However, the framework allows for expansion into other sectors including industrial parks, logistics, data centres, healthcare facilities, and hospitality, mirroring the diversification seen in global REIT markets.

With more than 129 million square feet currently managed under listed REITs, and over 400 million square feet of REIT-eligible office stock available in India, there is significant room for asset class diversification in the coming years.

How to Evaluate REIT Investments

Key REIT Metrics to Understand

Evaluating a REIT requires looking beyond just the yield. Investors should assess the following metrics:

• FFO (Funds from Operations): Measures recurring cash flow from operations. A key performance indicator for REITs.
  
• Price to FFO (P/FFO): Used like a P/E ratio to compare valuation.
  
• Distribution Yield: Annualized returns based on income distribution.
  
• WALE (Weighted Average Lease Expiry): Indicates income stability. A longer WALE suggests predictable cash flows.
  
• Occupancy Rates: Higher occupancy often indicates asset quality and demand.
  
• Net Debt to GAV: Measures the REIT’s leverage. A lower ratio signals a stronger balance sheet.
  

What to Look for Before Investing

Assess the REIT’s tenant profile, lease structure, geographical diversification, historical distribution record, and growth strategy. All four listed REITs in India currently maintain AAA credit ratings and strong occupancy levels, with average WALEs ranging between 7 and 8.5 years.

It is also prudent to check whether the REIT follows robust disclosure norms and is included in major global indices, which signals regulatory compliance and global investor confidence.

How Have REITs Performed and What’s the Market Outlook?

Historical Returns

From their respective listing dates up to May 2025, Indian REITs have delivered annualized returns between 13.2% and 14.6%, combining regular income distributions and capital appreciation.

This performance places them competitively between fixed income products and equities. Compared to 5-year Indian government securities (5.6%) or long-duration debt mutual funds (6.7%), REITs offer a more attractive total return proposition.

Growth Outlook

India’s REIT market is still at an early stage. While listed REITs manage 129 million square feet, the REIT-eligible office stock exceeds 400 million square feet. Similarly, of the 70 million square feet of eligible retail stock, less than 10 million square feet is currently held under REIT structures.

This gap indicates a large pipeline for future asset monetization, giving REITs a significant runway for growth as more developers and institutional owners look to unlock capital from real estate portfolios.

How to Get Started with REIT Investing

• Steps to Invest

Investing in a REIT is straightforward. Any individual or institutional investor with a demat account can purchase REIT units via Indian stock exchanges. No special registration or large capital is required.

Investors can track unit prices, distributions, and disclosures through public filings and exchange bulletins.

• Tax Treatment of REIT Income

REIT investments result in multiple income streams, each taxed differently:

(Source: IRA Primer, 2025)

Common Mistakes to Avoid

• Focusing Solely on Yield

While income is a major benefit, not all high-yield REITs are fundamentally sound. Investors should evaluate the consistency of income, tenant stability, and the sustainability of distributions before making decisions.

• Ignoring Interest Rate Risks

REITs may experience pricing fluctuations based on changes in interest rates. Rising rates can affect borrowing costs, asset valuations, and the relative attractiveness of income yields. It’s important to factor in macroeconomic trends while investing in REITs.

FAQs

Why should you invest in REITs?

REITs offer a regulated, liquid, and income-generating alternative to traditional property investments, with access to institutional-quality assets and professional management.

Which of these is considered a benefit of investing in a REIT?

SEBI mandates that REITs distribute 90%+ of net distributable income. This, along with liquidity and diversification, makes REITs appealing to investors seeking consistent returns.

What is REIT and how to invest?

A REIT is a SEBI-regulated trust that owns and operates commercial real estate. Investors can buy REIT units using a demat account, just like equities, through exchanges like NSE or BSE.