Today, buying property in cities like Mumbai, Delhi, or Bengaluru is not easy for middle-class people. The prices are too high, and the rental income does not match the investment. But what if you could earn regular rental income without buying a flat or office?
That’s where REITs (Real Estate Investment Trusts) come into play. They let you invest in significant commercial properties like offices, shopping malls, and hotels with small amounts of money. And the best part? You don’t need to handle tenants, maintenance, or paperwork.
Let’s understand in simple language what REITs are, how they give you income, how you can invest, and what risks and taxes are involved.
What Are REITs and How Do They Work?
REIT stands for Real Estate Investment Trust. It is a company that owns, operates, and manages income-generating real estate properties. These include big offices, retail malls, warehouses, hotels, etc.
You can think of REITs like mutual funds for real estate. Just like mutual funds collect money from many investors to buy shares, REITs collect cash to buy and rent out commercial real estate. They earn rent from tenants and give this money to investors like you through dividends and interest.
In India, REITs are regulated by SEBI (Securities and Exchange Board of India). SEBI has made it mandatory that:
- REITs must invest at least 80% of their assets in completed and rent-earning properties
- They must distribute at least 90% of their net income to investors regularly
So, you earn rental income without actually buying property.
How Do You Earn from REITs?
REITs earn most of their income from rent and lease agreements signed with big corporate tenants, malls, or business parks.
The income you receive from REITs generally comes in three parts:
- Dividend – Regular income from rent paid by tenants
- Interest – If REITs give loans to real estate companies or SPVs
- Capital Gains – If the value of the properties or REIT units increases over time
Because of SEBI rules, REITs must give away most of their earnings. This makes them a good option for investors who want stable and predictable income.
Are REITs Like Stocks?
Yes, REITs are listed on the stock market just like shares. You can buy and sell them through your regular Demat account.
Investing in a REIT gives you a small share of an extensive real estate portfolio. This means you are a part-owner of commercial properties in India.
As of 2025, there are 4 REITs listed in India:
1. Embassy Office Parks REIT
India’s first and largest REIT. Focused on office properties in Bengaluru, Mumbai, Noida, and Pune.
2. Mindspace Business Parks REIT
Owns premium office spaces in Mumbai, Pune, Hyderabad, and Chennai.
3. Brookfield India REIT
Backed by Canada’s Brookfield Group. Focuses on high-quality office buildings.
4. Nexus Select Trust REIT
India’s first retail REIT, investing in shopping malls and urban retail spaces.
You can track their prices and buy them like any regular share on NSE or BSE.
What Returns Can You Expect from REITs?
REITs in India have given average annual returns of 7% to 9%. These returns are made up of:
- 4% to 6% rental income (paid regularly)
- 1% to 3% capital appreciation over time
However, returns are not guaranteed. They depend on:
- How much office/mall space is occupied
- How much rent increases each year
- How the economy and interest rates are performing
- Growth in the commercial property sector
Compared to stocks, REITs do not give very high returns, but they are more stable and less affected by market swings. They are ideal for people who want a steady income with low risk.
What Are the Risks in REITs?
While REITs look safe, you should know about the risks involved:
- Interest Rate Risk: If RBI increases repo rates, returns from REITs can go down
- Vacancy Risk: If tenants leave, rental income will drop
- Low Liquidity: REIT prices don’t move much so that profits may take time
- Limited Options: Right now, India has only 4 REITs to invest in
Also, REITs may not be suitable for investors looking for fast capital growth, like in equity stocks.
Tax Rules for REITs in India
Income from REITs is taxed based on the type of income you receive:
1. Dividend Income
You do not need to pay taxes if the REIT pays dividends from tax-free sources. But if it’s from taxable sources, you must pay tax as per your income tax slab. TDS of 10% is also applicable if the amount crosses limits.
2. Interest Income
Interest income is fully taxable as income from other sources, and TDS is also applicable.
3. Capital Gains
If you sell REIT units:
- Before 12 months: 15% Short Term Capital Gains (STCG) tax
- After 12 months: 10% Long Term Capital Gains (LTCG) tax on gains above ₹1 lakh
So, while REITs give stable income, you must plan for taxes to understand your actual post-tax returns.
Who Should Invest in REITs?
REITs are suitable for the following types of investors:
- People who want regular income, like rent, without owning property
- Those who have limited capital but still want to invest in real estate
- Investors looking to diversify their portfolio beyond stocks and gold
- Retired individuals or low-risk investors
However, if your goal is high capital growth, you should consider equity mutual funds or stocks.
Experts also say that REITs should be a part of a balanced portfolio. To reduce overall risk, you can mix REITs with stocks, fixed deposits, and gold.
Pros and Cons of Investing in REITs
Advantages Disadvantages
Regular income from rent Returns drops if interest rates rise
Small capital needed to invest Slow capital growth compared to stocks
Easy to buy/sell like shares Limited choices — only 4 REITs in India (as of 2025)
Less affected by stock market swings Rental income is taxable
Regulated by SEBI Vacancy or lease risk may affect returns
Disclaimer: This article is for informational purposes only. Investments in REITs and markets are subject to risks. Always consult a SEBI-registered financial advisor before investing.
Sources: Moneycontrol, Live Hindustan, Economic Times
