Real Estate Investment Trust (REIT): A Complete Guide for Investors

By Anurag Tiwari

Top REITs in India: Everything You Need to Know

Top REITs in India

Currently, four major REITs are listed in India. Each has its own strengths and unique portfolio. Let’s take a closer look:

1. Brookfield India Real Estate Trust

• Portfolio: Premium office parks in Mumbai, Noida, Gurugram, and Kolkata.

• Strength: Backed by Brookfield Asset Management, a global giant in real estate.

• Highlight: Strong tenant base with MNCs, focus on sustainability, and consistent returns.

2. Embassy Office Parks REIT

• Portfolio: Over 40 million sq. ft. of office space across Bengaluru, Pune, Mumbai, and NCR.

• Strength: India’s first listed REIT (launched in 2019).

• Highlight: Strong presence in IT hubs, healthy occupancy rates, and backed by Blackstone.

3. Mindspace Business Parks REIT

• Portfolio: Office spaces across Mumbai, Pune, Hyderabad, and Chennai.

• Strength: Diversified tenant base in IT, banking, and professional services.

• Highlight: High occupancy levels, stable returns, and quarterly distributions.

4. Nexus Select Trust REIT

• Portfolio: Premium retail malls across major cities.

• Strength: First retail-focused REIT in India.

• Highlight: Exposure to India’s growing consumer and retail market.

What are REITs?

A business that owns and manages real estate in order to make money is known as a real estate investment trust, or REIT. firms that oversee the portfolios of valuable mortgages and real estate assets are known as real estate investment trust firms. They lease buildings and collect rent, for example. The resulting rent is then paid out as dividends and income to shareholders.

Generally speaking, REITs give investors the chance to own expensive real estate while also allowing them to get dividend income, which will gradually increase their capital. In this manner, investors can take advantage of the chance to increase their wealth while also earning income.

This investment option allows both large and small investors to store their money and benefit from it. Small investors could try to invest in big commercial real estate developments by pooling their funds with those of other investors. Data centers, infrastructure, medical facilities, residential buildings, etc. are examples of properties that are part of REITs.

How Does a Company Qualify as a REIT?

A business must fulfill the standards listed below in order to be eligible to become a REIT.

• The entity needs to be structured as a business trust or a corporation.
• Extends fully transferable shares.
• Is managed by a team of trustees or a board of directors.
• Must have a minimum of 100 shareholders.
• Less than 5 individuals should not have held 50% of its share during each taxable year.
• Is required to pay at least 90% of the taxable income as a dividend.
• Accrue a minimum 75% of gross income from mortgage interest or rents.
• A maximum of 20% of the corporation’s assets comprises stock under taxable REIT subsidiaries.
• A minimum of 75% of investment assets must be in real estate.
• A minimum of 95% of REITs total income should be invested.

Real estate investment trust (REIT) types include

The kinds of businesses that REITs engage in generally aid in their classification. Additionally, the strategies developed for buying and selling shares aid in the categorization of REITs.

The many categories of REITs are shown below.

• Equity

One of the most common kinds of REITs is this one. It usually focuses on running and overseeing commercial assets that generate revenue. Notably, rent is the primary source of income in this area.

• Mortgage

Also referred to as mREITs, its primary functions include providing mortgage facilities and lending money to business owners. Additionally, REITs frequently purchase mortgage-backed securities. Interest earned on loans made to business owners is another source of revenue for mortgage REITs.

• Hybrid

By investing in both mortgage REITs and equity REITs, this strategy enables investors to diversify their holdings. Therefore, this specific type of REIT generates revenue from both rent and interest.

• Private REITS

These trusts function as private placements, which cater to only a selective list of investors. Typically, private REITs are not traded on National Securities Exchanges and are not registered with the SEBI.

Publicly traded REITs

Generally, shares that are listed on the National Securities Exchange and subject to SEBI regulation are distributed by publicly traded real estate investment trusts. Through the NSE, individual investors can buy and sell these shares.

Non-traded public REITs

These REITs are registered with SEBI but are not listed. Nevertheless, the National Stock Exchange does not trade them. Additionally, these options are less liquid as compared to publicly traded non-traded REITs. Additionally, because they are not impacted by changes in the market, they are more stable.

The benefits of REITs

The following are some advantages for investors who place their money in a REIT.

• Steady dividend income and capital appreciation: It is claimed that investing in REITs would yield significant dividend income in addition to long-term, consistent capital growth.
• Option to diversify: Investors have the chance to diversify their real estate holdings because the majority of REITS are regularly traded on stock markets.
• Transparency in dealing: Due to SEBI regulation, REITs must submit financial reports that have been professionally audited. It makes the entire process transparent by giving investors the chance to obtain information on topics like ownership, taxes, and zoning.
• Liquidity: Since the majority of REITs trade on open stock markets, they are simple to buy and sell, which increases their liquidity.
• Accrues risk-adjusted returns: Individuals can receive consistent income flow and risk-adjusted returns by investing in REITs. It makes it possible for people to have a reliable source of income, especially in situations where inflation is rampant.

Limitations of REITs

• No tax-benefits: In terms of tax savings, REITs are not very helpful. The dividends received from REIT businesses, for example, are taxable.
• Market-linked risks: Being vulnerable to market-related volatility is one of the main risks connected with REITs. For this reason, investors with low risk tolerance should consider the investment’s potential for yielding returns in advance.
• Low growth prospect: In the case of REITs, the likelihood of capital appreciation is very modest. This is primarily because they give investors up to 90% of their profits and only reinvest the remaining 10% in their business.

The benefits and drawbacks of investing in leading REITs are shown in the accompanying table.

Who Is a Good REIT Investor?

REITs are among the priciest investment options as they own and operate valuable real estate holdings. As a result, investors with significant wealth at their disposal are the ones that put their money into REITs. Large institutional investors, such as pension funds, bank trust departments, insurance companies, and endowments, can invest appropriately in these financial instruments.

In a retirement portfolio, REITs’ function

There are a number of reasons why investing in REITs for retirement might be advantageous. The following guidelines provide important insight into the same.

introduces a variety of assets to the portfolio.

One can greatly diversify their asset classes and avoid the need for human management by using real estate. Furthermore, REITs would not be impacted by changes in the prices of other investment alternatives due to diversity. Instead, it might be argued that REITs’ value declines more slowly than equities’ in a declining market.

Possibility of making money

Investors typically see significant profits as the value of REITs increases. Additionally, these businesses must pay out up to 90% of their taxable profits to their owners, which provides a source of consistent revenue.

Long-term appropriate

REITs are more in line with the movement of the real estate market than equities and bonds, which have a six-year economic cycle. Notably, this type of movement typically lasts for more than 10 years, making it ideal for investors seeking a lengthy investing horizon. As a result, it turns out to be a lucrative retirement planning investment option.

Helps protect against inflation

According to studies, REITs give investors the ability to protect themselves from inflation’s long-term consequences. For example, compared to stock options, investors can better safeguard their money from inflationary impacts by being invested for a period of five years.

How Can I Invest in Trusts for Real Estate?

Investors may choose to purchase shares in a certain REIT that is listed on the main stock markets, just like they would with any public stock. They can do so in the three methods listed below.

1. Stocks: Those seeking a more straightforward method of investing in REITs want to think about using stocks.

2. Mutual funds: People might further diversify their financial portfolio by selecting this choice. Investors would have to use a mutual fund business to invest in such a fund because it is an indirect investing strategy.

Exchange-traded funds: This type of investing allows investors to indirectly own real estate and offers additional diversification benefits.

With the notable exception of holding properties rather than bonds or stock options, REITs as investment alternatives typically resemble mutual funds. Investors in REITs also have the right to seek the advice of financial consultants in order to make better selections about which REIT option to choose.

How to Evaluate Investment Trusts in Real Estate

If investors consider the following advice, they can evaluate a certain REIT’s merits more accurately.

• Investors should search for companies with a track record of providing high dividend yields before making an investment in any specific REIT.
• They also examine how the business contributes to long-term capital growth.
  By buying shares on stock exchanges, investors may diversify their financial portfolio without having to commit to long-term investments.
• Funds should be invested in REITs that own a variety of buildings and tenants.
• ETFs and mutual fund alternatives that invest in REITs are the better choices for them.
• Investors would be able to handle these funds more skillfully since they come with expert support.
• It would be more advantageous to choose businesses with an experienced core staff and a number of years of expertise in the industry.

Finally, people ought to make it a point to learn how their investments will be repaid. For example, they could use measures like fund from operations or financial management rate to examine the REIT’s management team and performance history. To maximize profits, it would also be advantageous to account for a REIT’s increase in EPS and existing dividend income before to investment.

Read Also: Top 4 REITs in India and What Makes Them Attractive to Investors

Frequently Asked Questions (FAQs) about REITs

Q1. What exactly is a Real Estate Investment Trust (REIT)?
A REIT is a company that owns, operates, or finances income-generating real estate. It allows investors to earn dividends from real estate investments without having to buy, manage, or finance properties themselves.

Q2. How does a REIT generate income?
Most REITs earn money by leasing properties and collecting rent. The income is then distributed to shareholders in the form of dividends. Mortgage REITs, on the other hand, earn interest from financing real estate loans.

Q3. What are the main types of REITs?

• Equity REITs – Focus on owning and operating income-producing properties.

• Mortgage REITs (mREITs) – Provide financing for real estate and earn from interest.

• Hybrid REITs – Combine both equity and mortgage investments.

• Private REITs – Not traded publicly and open only to select investors.

• Publicly Traded REITs – Listed on stock exchanges and regulated by SEBI.

• Non-Traded Public REITs – Registered but not exchange-listed, offering less liquidity.

Q4. Who can invest in REITs?
Both small and large investors can invest in REITs. Small investors gain access to commercial real estate by pooling funds, while institutional investors such as pension funds, banks, and insurance companies often make significant allocations.

Q5. What are the benefits of investing in REITs?

• Regular dividend income and potential capital appreciation.

• Diversification in real estate assets.

• Transparency due to SEBI regulations.

• High liquidity (for listed REITs).

• Inflation hedge and long-term growth opportunities.

Q6. What are the risks or limitations of REITs?

• Dividends are taxable and offer no special tax benefits.

• Vulnerability to stock market fluctuations.

• Lower capital growth prospects (since 90% of profits are paid as dividends).

• High management and maintenance fees.

Q7. How do I invest in a REIT in India?
Investors can:

• Buy REIT stocks listed on NSE/BSE.

• Invest through mutual funds that include REITs.

• Choose REIT-focused Exchange-Traded Funds (ETFs).

Q8. Are REITs good for retirement planning?
Yes, REITs can be a strong addition to retirement portfolios. They provide stable dividend income, long-term capital growth, and act as a hedge against inflation, making them suitable for long-term investors.

Q9. How can I evaluate a REIT before investing?
Check for:

• Dividend yield history.

• Portfolio diversity (properties and tenants).

• Management expertise and experience.

• Growth in earnings per share (EPS).

• Financial health indicators such as Funds From Operations (FFO).

Q10. What is the minimum investment required in Indian REITs?
Currently, SEBI has set the minimum investment amount for REITs in India at ₹10,000 – ₹15,000, making it accessible even for retail investors.

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