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REITs generate income primarily through rent and lease agreements from the properties they manage.
While not high-growth instruments like equities, REITs aim to provide stable and predictable income, especially valuable for conservative and income-focused investors.
In recent years, REITs (Real Estate Investment Trusts) have emerged as a compelling investment option for Indian investors seeking exposure to real estate without actually buying physical property. With the rise of high-quality office and retail spaces, REITs allow retail investors to participate in income-generating commercial real estate.
But what exactly are REITs? How do they generate rental income? Are they like stocks? And what about taxation? Here’s a complete guide.
What Are REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate across a range of sectors. Think of REITs as mutual funds for real estate.
In India, REITs are regulated by the Securities and Exchange Board of India (SEBI) and must invest at least 80% of their assets in completed and revenue-generating properties, such as:
- Commercial office spaces
- Shopping malls
- Warehouses
- Hotels and other hospitality assets (under some models)
REITs collect rent from tenants of these properties and distribute most of that income to their unit holders.
How Does Rental Income Work in REITs?
REITs generate income primarily through rent and lease agreements from the properties they manage. This income is distributed to investors in the form of:
- Dividends
- Interest income
- Capital gains (in some cases)
By regulation, Indian REITs must distribute at least 90% of their net distributable cash flows to investors. This makes them an attractive choice for those seeking regular income.
Are REITs Equity Investments?
Yes, REITs are listed and traded on stock exchanges just like shares. So, when you buy REIT units, you’re essentially buying a fractional ownership in a real estate portfolio. Currently, there are four listed REITs in India (as of 2025):
1. Embassy Office Parks REIT – India’s first and largest REIT, focused on commercial office assets
2. Mindspace Business Parks REIT – Owns premium business parks across major cities
3. Brookfield India REIT – Sponsored by Canadian firm Brookfield, with a strong office portfolio
4. Nexus Select Trust REIT – India’s first retail REIT, focused on shopping malls and urban consumption spaces.
While REITs behave like equities in terms of liquidity and trading, their returns are driven by rental yields and occupancy rates, not by corporate earnings like traditional stocks.
What Returns Do REITs Typically Give in a Year?
REITs in India have typically offered annual returns of 7–9 per cent, which include:
- 4-6% rental yield (distributed as income)
- 1-3% capital appreciation, depending on market conditions and asset performance
Returns may vary based on:
- Property occupancy levels
- Rental escalations
- Interest rate environment
- Real estate market trends
While not high-growth instruments like equities, REITs aim to provide stable and predictable income, especially valuable for conservative and income-focused investors.
Tax Applicability on REITs in India
REIT taxation in India depends on the nature of income.
* Short Term (<12 months): Taxed at 20%
* Long Term (>12 months): Taxed at 12.5% (above Rs 1.25 lakh capital gains) |
TDS (Tax Deducted at Source) applies on interest and taxable dividends paid to resident investors.
Should You Invest in REITs?
According to a stock market expert, REITs have both pros and cons. Among its advantages are regular income stream via rent distributions, diversification from stock market volatility, low investment as compared to physical real estate, liquidity as they trade on stock exchanges, transparent structure regulated by SEBI.
The expert said REITs have their limitations as well. He said REITs have interest rate sensitivity (yields may look less attractive when rates rise), limited capital appreciation compared to high-growth stocks, taxable income streams unlike debt mutual funds with indexation, and limited options (only 4 listed REITs as of now).
“After stocks and gold, REITs can be included in your portfolio to diversify it,” he added.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
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