Real Estate Investment Trusts, or REITs, are investment vehicles that pool money from investors and channel it into income-generating real estate. Instead of buying a property on your own, a REIT allows you to own a slice of large commercial spaces such as office buildings, retail centres and industrial parks. These properties are rented out to companies on long-term contracts, and the income earned is distributed to the REIT’s unit holders.
Most REITs manage high-value real estate portfolios in metro cities. They raise capital by listing their units on the stock market. Once listed, the price of a REIT unit may rise if the trust performs well and more investors demand these units. For ordinary investors, this offers an easy way to invest in real estate without needing a huge sum of money.
Structurally, REITs are similar to mutual funds. They involve a sponsor, a management company and a trust. The trust legally owns the real estate on behalf of investors, while the management company oversees the portfolio. Rental income, interest earned from commercial properties and capital gains from the sale of such properties all form the trust’s income, which is then shared with investors.
Investing directly in property can be a long, complicated and expensive process. A traditional investor must find the right land, build or buy a property, arrange for permits, search for trustworthy tenants and manage the rental collection. Selling the property can also be time-consuming, as the investor may have to wait for the right buyer and a favourable price.
This leads to several challenges:
(i) Finding good land at a reasonable price can be difficult.
(ii) Construction, tax and regulatory approvals can be time-consuming.
(iii) Securing reliable tenants and collecting rent regularly is not always easy.
(iv) Real estate requires significant capital, which many investors may not have.
(v) Liquidity can be a problem. Land and property prices can fluctuate depending on demand, and selling a property quickly is often not possible.
(vi REITs solve most of these concerns by offering an easier, more flexible route into real estate.
Easy to buy and sell
REIT units can be purchased or sold through a demat account, just like ordinary shares. This gives investors convenience and flexibility.
Low entry cost
You do not need lakhs of rupees to enter the real estate market. Even with a small amount—sometimes less than ₹500—you can buy units of a REIT and indirectly own high-quality commercial property.
Regular income
REITs distribute income every quarter in the form of dividends, interest or return of capital. SEBI regulations mandate that REITs must distribute at least 90% of their income to investors.
Opportunity for capital gains
Since REITs are listed on the stock market, the value of their units may rise over time if the underlying properties perform well. This creates the potential for long-term profits.
High liquidity
Unlike physical property, REIT units can be sold instantly—whether you hold one unit or many.
Managed by experts
REIT portfolios are handled by professional managers with deep experience in real estate. This increases the likelihood of stable performance.
Diversification benefits
A single investor may struggle to diversify across multiple properties or locations, but REITs do this automatically. They spread investment across various commercial projects and cities, reducing the risk of relying on one property alone.
