'Reits are suitable for investors seeking regular income and real estate exposure without managing physical properties, especially NRIs and retirees.'
Real estate investment trusts (Reits) distributed Rs 1,559 crore to 270,000 unit holders in the first quarter of 2025-2026, 13 per cent higher than the Rs 1,371 crore in the same quarter last year.
The number of unit holders rose from 245,000 to 270,000, attesting to their popularity.
Reits' appeal
Reits are positioned as total-return products.
"They offer regular income through rental distributions.
"By regulation, Reits must distribute at least 90 per cent of their cash flows to unit holders once every six months. However, Indian Reits have been making quarterly payouts," says Pratik Dantara, executive committee member, Indian Reits Association.
High-quality tenants on long leases provide stable cash flows.
"With distribution yields typically in the 6 to 7 per cent range, and the possibility of capital appreciation, Reits present an attractive total return profile in the mid-teens," says Abhishek Agrawal, chief financial officer, Embassy Reit.
"Investors can expect a minimal annual capital appreciation of 3 to 5 per cent," says Vishal Iyer, CFO, Integrow Asset Management Company.
Anyone with a demat account can invest.
"Since Reits are listed, investors benefit from transparency and the liquidity to exit whenever needed," says Sharad Mittal, founder and chief executive officer, Arnya RealEstates Fund Advisors.
They allow investors to diversify their portfolios.
"Investors can benefit from real estate's lower correlation with other asset classes," says Bhavya Bagrecha, fund manager, Wealth Company Asset Management.
"When stock markets are volatile due to economic uncertainties, well-located commercial properties often maintain their rental income streams," says Chanchal Agarwal, chief investment officer, Equirus Credence Family Office.
Investors also avoid the hassle of managing the property.
Their downsides
Reits face market and sector-specific risks.
"Changes in demand for office or retail space can influence performance," says Dantara.
Factors like interest rates, economic cycles, and property market trends also affect performance.
Concentration risk also applies to them.
"Most invest in grade A offices that are usually concentrated in a few cities, hence any negative local economic event can have a disproportionate impact," says Iyer.
Interest rate sensitivity is another factor. "When rates rise, Reit valuations face pressure as their dividend yields become less attractive compared to risk-free alternatives," says Agarwal.
Who should consider Reits?
Reits suit investors seeking real estate exposure with modest capital.
"They allow investors to participate in a diversified portfolio of commercial assets with a much smaller investment than required in direct ownership," says Mittal.
They appeal to those looking for a steady income.
"Reits are suitable for investors seeking regular income and real estate exposure without managing physical properties, especially NRIs and retirees," says Yash Sedani, assistant vice president, investment strategy at 1 Finance.
Their quarterly cash flows can supplement pension income.
"Unlike fixed deposits, where returns remain static, Reit distributions can grow over time as rentals increase," says Agarwal.
Who should steer clear?
Investors who want high capital appreciation should avoid Reits.
"Since they distribute most of their income as dividends, capital appreciation is usually lower compared to growth stocks," says Bagrecha.
Sedani adds that those who dislike market volatility should also avoid Reits.
Agarwal warns that Reits may not always be as liquid as large-cap stocks, particularly during periods of market stress.
Checks to run
- Assess quality and location of properties held by REITs (prime properties in established business districts perform better)
- Ensure properties are geographically diversified
- Scrutinise tenant quality, diversification across industries, and lease expiry patterns
- Review management and sponsor's track record, fee structure, and payout history
- Evaluate debt levels, interest coverage, past performance, and liquidity on exchanges
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Ashish Narsale/Rediff
© 2025