Real Estate Investment Trust (REIT): What is a REIT? Ultimate Guide 2025

Real Estate Investment Trusts (REITs) are transforming how Indians invest in real estate. These companies pool funds from multiple investors to own, operate, or finance income-generating properties, offering transparency, liquidity, and consistent dividends. In this comprehensive guide, we’ll explore what REITs are, their types, benefits, risks, and why they’re a game-changer for small investors in India as of May 16, 2025.

Topics Covered

• What is a REIT?
• Types of Real Estate Investment Trusts (REITs)
• How Does a Company Qualify as a REIT?
• Advantages of REITs
• Disadvantages of REITs
• How to Invest in REITs in India
• Are REITs a Good Investment in 2025?
• FAQs

What is a REIT?

A Real Estate Investment Trust (REIT) is a company that pools funds from investors to invest in income-generating real estate, such as commercial offices, malls, hotels, or warehouses. Think of REITs as mutual funds for real estate—they allow you to earn rental income or interest without the hassle of buying or managing properties.

In India, REITs are regulated by the Securities and Exchange Board of India (SEBI) and are traded on stock exchanges like the NSE and BSE, making them highly liquid. By law, REITs must distribute 90% of their taxable income as dividends, ensuring steady payouts for investors. This makes REITs an attractive option for those seeking passive income and portfolio diversification.

Why REITs Matter in India

Real estate accounts for 77% of Indian household wealth, according to the Reserve Bank of India. However, traditional real estate investments are illiquid, expensive, and require extensive due diligence. REITs solve these issues by offering:

• Low entry costs: Invest with as little as ₹10,000-₹15,000.
• Liquidity: Buy and sell units on exchanges like stocks.
• Transparency: SEBI regulations ensure audited financials and clear disclosures.

Whether you’re a small investor or a seasoned one, REITs provide access to premium properties like Grade A offices or prime malls without the complexities of direct ownership.

Types of Real Estate Investment Trusts (REITs)

REITs are classified based on their business focus and trading structure. Here are the main types:

1. Equity REITs
   • Own and manage income-generating properties, such as offices or malls.
   • Primary income: Rental income.
   • Example: Nexus Select Trust (retail-focused REIT in India).
2. Mortgage REITs (mREITs)
   • Finance real estate by lending money or investing in mortgage-backed securities.
   • Primary income: Interest on loans.
   • Less common in India but prevalent globally.
3. Hybrid REITs
   • Combine equity and mortgage REIT features, earning from both rents and interest.
   • Offer diversification within a single REIT.
4. Publicly Traded REITs
   • Listed on stock exchanges like NSE, regulated by SEBI.
   • Highly liquid and accessible to retail investors.
   • Example: Embassy Office Parks REIT.
5. Public Non-Traded REITs
   • Registered with SEBI but not listed on exchanges.
   • Less liquid but more stable, less affected by market volatility.
6. Private REITs
   • Not listed, catering to select investors.
   • Not regulated by SEBI, often used for private placements.

In India, publicly traded equity REITs dominate, with four major players: Nexus Select Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust.

How Does a Company Qualify as a REIT?

To qualify as a REIT in India, a company must meet stringent SEBI regulations, ensuring investor protection and operational transparency. Key requirements include:

• Structure: Must be a corporation or trust with transferable shares.
• Governance: Managed by a board of directors or trustees.
• Ownership: At least 100 shareholders, with no more than 50% of shares held by five or fewer individuals.
• Income Distribution: At least 90% of taxable income distributed as dividends.
• Asset Allocation:
  • 75% of assets in real estate.
  • 75% of income from rents or mortgage interest.
  • No more than 20% in taxable REIT subsidiaries.
• Income Source: 95% of total income from investments.

These rules ensure REITs focus on income generation and transparency, making them reliable for investors.

Advantages of REITs

REITs offer unique benefits, making them a compelling choice for Indian investors in 2025:

1. Steady Dividend Income
   • Mandatory 90% dividend payout ensures regular income.
   • Ideal for passive income seekers.
2. Portfolio Diversification
   • REITs span offices, malls, and warehouses, reducing reliance on stocks or bonds.
3. High Liquidity
   • Traded on exchanges, REITs can be bought or sold instantly, unlike physical real estate.
4. Transparency
   • SEBI mandates audited financials, ensuring clear insights into taxes, ownership, and property details.
5. Inflation-Resistant Returns
   • Rental income often adjusts with inflation, providing stable, risk-adjusted returns.
6. Low Capital Requirement
   • Invest in premium properties with as little as ₹10,000, compared to crores for direct real estate.

Disadvantages of REITs

While REITs are attractive, they have limitations:

1. No Tax Benefits
   • Dividends are taxed as ordinary income, reducing net returns.
2. Market Risks
   • REIT prices fluctuate with stock market trends, posing risks for low-risk investors.
3. Limited Growth Potential
   • With 90% of income distributed, only 10% is reinvested, capping capital appreciation.
4. High Maintenance Costs
   • Property management and operational costs can reduce returns.
5. Additional Fees
   • Some REITs charge management fees, impacting overall profitability.

Pros and Cons of REITs

How to Invest in REITs in India

Investing in REITs is straightforward and accessible. Here are the main methods:

1. Direct Stocks
   • Buy REIT units on NSE or BSE through a demat account (e.g., Nexus Select Trust).
   • Platforms like Angel One offer seamless trading.
2. Mutual Funds
   • Invest in real estate-focused mutual funds for indirect REIT exposure.
   • Offers diversification but less control.
3. Exchange-Traded Funds (ETFs)
   • Buy ETFs that track REIT indices for diversified real estate exposure.

Steps to Invest

1. Open a demat and trading account with a trusted broker like Angel One.
2. Search for REITs (e.g., NXST for Nexus Select Trust).
3. Place a buy order at the market price or set a limit order.
4. Monitor dividends (paid quarterly) and price movements.

For personalized guidance, consult a financial advisor to align REITs with your goals.

Are REITs a Good Investment in 2025?

India’s REIT market, launched in 2019, is relatively new but growing rapidly. With only four listed REITs as of May 2025, they’ve gained traction for their unique advantages. Here’s why REITs make sense:

• Low Capital Requirement: Unlike physical real estate, which requires crores, REITs allow investments starting at ₹10,000.
• Small Investor-Friendly: REITs eliminate the need to deal with developers or conduct complex due diligence.
• Transparency: Exchange-traded REITs ensure easy price discovery and hassle-free transactions.
• Assured Income: Mandatory 90% dividend payouts provide a steady income stream.

In 2025, REITs like Nexus Select Trust (retail-focused, 97.4% occupancy) and Embassy Office Parks REIT (office-focused, 6-7% yield) offer stability and growth. However, consider risks like market volatility and taxation before investing.

Conclusion

REITs are revolutionizing real estate investing in India, offering liquidity, transparency, and steady income for small and large investors alike. By investing in commercial properties like offices, malls, and warehouses, REITs provide an alternative to physical real estate, ideal for portfolio diversification. As of May 16, 2025, India’s REIT market is poised for growth, making it a compelling option for 2025 and beyond.

Start your REIT investment journey today with a trusted platform like Angel One and enjoy seamless trading with ₹0 account opening charges.