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A REIT is simply a listed company that owns commercial real estate, office buildings, malls, warehouses, and passes most of the rental income to you as a unit-holder. You don’t need a crore to buy a flat in an IT park. You can own a slice of one for around ₹10,000–₹15,000.
India has had listed REITs since 2019. The three you’ll hear about most often are Embassy Office Parks, Mindspace Business Parks, and Nexus Select Trust (which focuses on malls rather than offices). Each of them owns multiple properties across major cities, and each is required by regulation to distribute at least 90% of their net distributable cash flow to unit-holders every quarter.
How REITs actually make money
The income for a REIT comes from rent. Large tenants, multinational IT companies, banks, retail chains, sign long leases of 5 to 10 years. This gives the REIT relatively predictable cash flows. Part of that cash flow pays for the REIT’s operating expenses and interest on its debt, and the rest is distributed to unit-holders.
Over the past few years, Indian REITs have delivered distribution yields in the range of roughly 7–8% per year, though this varies and is not guaranteed. You also have the potential for capital appreciation if the underlying properties increase in value. But honestly, the yield is the main draw here, REITs are primarily an income instrument, not a growth instrument.
Distributions arrive quarterly, which many retirees and income-seeking investors find attractive. A Nifty 50 ETF might give you better long-run capital gains, but it won’t put cash in your account every three months the way a REIT can.
The tax treatment, this part matters
REIT distributions are not simple dividends. They come in three flavours, and the tax treatment differs for each.
The first component is interest income. This happens when the REIT earns interest from loans it has made to the underlying special purpose vehicles (SPVs) that actually hold the properties. Interest income is taxed at your slab rate, so if you’re in the 30% bracket, that portion is taxed at 30%.
The second component is dividends distributed from the SPVs. As of current tax rules, these are also taxable at your slab rate if the REIT distributes them as dividends.
The third component is return of capital, essentially a repayment of the original cost of the asset. This is not taxed immediately. Instead, it reduces your cost basis, meaning you’ll pay capital gains tax on a larger gain when you eventually sell the units. It defers tax rather than eliminating it.
Each REIT discloses the breakdown of every distribution. You need to track this properly to file your taxes correctly. If you invest through a broker like your broker, they provide a tax P&L statement that helps, but you should double-check the components against the REIT’s distribution notices.
Capital gains on REIT units themselves work like listed equity, short-term (held under 1 year) at 20%, long-term at 12.5% (after ₹1.25 lakh annual exemption). These numbers are as per current rules and can change.
What you actually own
Embassy Office Parks owns around 45 million square feet of office and hotel space across Bengaluru, Pune, the NCR, and Mumbai. Mindspace Business Parks has a large portfolio concentrated in Hyderabad and Mumbai. Nexus Select Trust owns 17 retail malls across tier-1 and tier-2 cities.
These are real, physical assets. Office buildings with glass facades and thousands of employees showing up every morning. That’s different from buying a mutual fund that owns paper claims on companies. There’s something grounding about that, you can visit a Nexus mall and know you’re a part-owner of the building.
But what you own is a unit in a trust, not a direct ownership stake in the property. The trust structure means there are layers between you and the asset, the REIT manager, the SPVs, the property management companies. This is standard globally, but it’s worth understanding what you’re actually buying.
The risks, be honest about these
Vacancy is the most direct risk. If tenants don’t renew leases, or if a large tenant exits, rental income falls and distributions shrink. Post-pandemic, there were legitimate concerns about whether office demand would recover. It largely has in India, but the question of how work patterns evolve over the next decade is not fully settled.
Interest rate sensitivity is the second major risk. REITs borrow money to fund their acquisitions, and when rates rise, their borrowing costs go up and their distributable income can fall. At the same time, higher interest rates make REIT yields look less attractive compared to fixed deposits and bonds, which puts downward pressure on unit prices. This is why REITs globally fell in value when central banks raised rates sharply in 2022–2023.
Sponsor risk is less discussed but worth thinking about. Each REIT has a sponsor, Embassy Group, Mindspace’s parent company, Nexus. The sponsor typically manages the properties and may have interests that don’t always align with unit-holders. Related-party transactions, fees, and asset injection decisions are areas where unit-holder interests and sponsor interests can diverge. Read the annual report before you invest.
Liquidity risk is lower than direct real estate, you can sell REIT units on the exchange any trading day, but the trading volumes on Indian REITs are not as deep as on large-cap stocks. If you need to sell a large position quickly, you may face some price impact.
How to invest in a REIT
You need a demat and trading account, the same one you use for stocks. REITs trade on NSE and BSE. You can search for EMBASSY, MINDSPACE, or NEXUS on your broker’s platform and buy units like you’d buy a share. There’s no SIP facility the way there is with mutual funds, though some brokers let you set up recurring orders.
The minimum lot size for Indian REITs has been reduced to one unit, so the barrier to entry is just the price of one unit, which varies but is typically in the ₹200–₹400 range per unit for most REITs. That means you can start with a small amount and add over time.
My honest view
REITs are a genuinely useful addition to a diversified portfolio. They give you exposure to commercial real estate, an asset class most Indian investors never access, at a fraction of the cost, with proper liquidity and regulatory oversight.
But they’re not a shortcut to wealth. The distribution yield is reasonable, not spectacular. The capital appreciation potential is moderate compared to equity. And the tax treatment means the net yield in your hands is lower than the headline number, especially if you’re in the higher tax brackets.
I think of REITs the way I think about the broader allocation framework I wrote about in Farming Money, they’re one tool among several, not the whole strategy. If you’re building a portfolio and you want some real-asset exposure that isn’t tied to gold and isn’t direct residential property, a small allocation to REITs makes sense.
If you want to understand how REITs compare to InvITs, which hold infrastructure assets rather than property, I’ve written about that comparison separately at REIT vs InvIT vs Direct Real Estate.
For most people, a 5–10% allocation to REITs as part of a balanced portfolio is a sensible range. Don’t chase them when yields compress. Don’t ignore them because they’re unfamiliar. Understand what you’re buying, track the distributions properly for tax, and be patient.
Practical takeaway: Before buying any REIT, look up the last four quarters of distribution notices to understand the interest/dividend/return-of-capital split. This tells you what your actual post-tax yield will be and avoids a tax surprise at filing time.
This post is for educational purposes only. It is not financial advice. Mohit Mehra is not a SEBI registered investment advisor. Please consult a qualified financial advisor before making investment decisions.