REITs… Time has come

REIT are Real Estate Investment Trusts. They are just like mutual funds that pool money from investors and invest in income generating real estate assets. The units are listed in stock exchanges making it possible to buy or sell at any time. Globally REITs are popular among investors. They operate in over 40 countries – with US leading the list.

In India, REIT was first launched in 2019. There was huge buzz then. But the growth was not as expected.

Advantages of REITs:

1. Usually real estate investments demand huge capital. But through REIT you can invest even small capital – just like you do in normal mutual funds. This fractional ownership with provision of instant liquidity is by itself a big advantage for retail investors.
2. Just like mutual funds, REIT are regulated by SEBI.
3. REITs invest in a collection of properties – like office space, shopping mall, warehouse etc - across cities – there by helping in diversifying risk.
4. Since it is managed by professionals with proper infrastructure, investors need not worry about the paperwork before buying property, maintaining the property, collecting rent, paying taxes, handling litigations etc.
5. REIT in India can invest only in income yielding assets. And they have to payout 90% of the income earned by way of dividends.
6. While quantum of dividend paid depends on the rental revenue from  underlying asset, the periodic revision of rental can help in pushing up the yield.

Apart from the above mentioned benefits,  in reality REIT is a big boost for the economy:

1. Infrastructure and real estate projects demand huge capital. So far they have raised capital mostly by way of debt. If REITs get popular among investors, retail money can help fund these projects. As a result, you could see revival in economic activities like construction, material supplies and job creation.
2. Real estate so far has by and large been an unorganized market. But when organized players get in to it, the who industry gets streamlined and transparent – helping investors make confident investment decisions.
3. Usually we invest in real estate only in places where we can reach out physically. For someone living in Madurai, investing in places like Mumbai or Gurgaon is unthinkable. But the REITs you invest in may have properties in various locations, thus helping in geographic diversification and broad based economic development.

So far we have only 4 REIT’s listed in India:

1. Embassy Office Park REIT : operates 51.1 million sq ft across 14 office parks in Bengaluru, Mumbai, Pune, NCR and Chennai.  
2. Mindspace Business Park REIT: has Grade‑A office business parks, across Mumbai Region, Hyderabad, Pune & Chennai with a total leasable area ~38.1 msf.
3. Brookfield India Real Estate Trust: has office real estate (Grade‑A) with a mix of campus‑style business parks and standalone assets. They have 29.0 msf of total leasable area
4. Nexus Select Trust: They have 19 shopping malls across 15 cities and some mixed assets (retail, hotel, a small part office) across India.

 Inspite of such a promising portfolio, REIT was not that popular among investors. But the recent announcement (on 12^th Sept 2025) by SEBI - reclassifying REITS as equity asset is likely to be a game changer. Let us understand why:

• REITs can now be included in any equity portfolio. Being a high dividend yielding asset with relatively lesser volatility, REITs can help fund managers to ‘hide’ / park funds during volatile times.
• Hybrid mutual funds are now taxed as follows:
• Aggressive Hybrid Funds like traditional balanced funds – with more than 65% equity exposure – are taxed at 12.5% in the Long Term Capital Gain if you hold for more than 12 months – just like normal equity funds.
• Conservative Hybrid Funds like Balanced Advantage Funds (BAF), Multi Asset Funds (MAF) or dynamic asset allocation funds maintain 35% to 65% in equity exposure. The long term capital gains tax is 12.5% - if you stay invested for more than 24 months.
• Debt oriented Hybrid funds with less than 35% equity exposure are taxed at individuals tax slab rate.

Normally, if the hybrid fund managers feel the equity asset is volatile, they prefer to reduce the equity allocation. But to maintain the overall equity threshold – to qualify as aggressive hybrid fund or conservative hybrid fund - usually they fill the gap by investing in arbitrage fund which is classified as equity asset. Arbitrage funds typically yield around 5% to 6%.

With REITS being classified as equity asset, hybrid funds are bound to add REITs in their portfolio along with arbitrage funds. A dividend yield of 7% to 8% + 2% to 3% from rental increment from REITs is bound to push up the yield of hybrid funds.

If someone wants to invest ‘safely’ – in a non equity asset – but with an equity (lower) taxation, then REITs is a blessing in disguise. The mandatory distribution of 90% of the income earned as dividend is suitable for those who are looking for regular cash flow. Looks like – the time for REITs have come atlast.