REITs: commercial real estate with small capital

Office buildings for the price of a unit

Grade-A office parks and large malls are among the most stable rented property in India, with corporate tenants on multi-year leases. Until 2019 a retail investor had no way to own a piece of one. A Real Estate Investment Trust, or REIT, changes that: it pools such buildings into a trust, lists the trust's units on the stock exchanges, and passes most of the rent to unitholders.

Since SEBI cut the trading lot to one unit in 2021, the entry ticket on the exchange is the price of a single unit. That is the whole point for a small investor: exposure to commercial rent without a ₹50 crore building or even a ₹50 lakh flat.

How a REIT works

A REIT is a trust registered with SEBI. The rules that shape it, in short:

• Mostly completed, rented property. At least 80% of the asset value must sit in completed, income-producing buildings. Development risk is capped.
• Most of the cash must be paid out. At least 90% of net distributable cash flow goes to unitholders, at least once every six months. Most listed REITs pay quarterly.
• Borrowing is capped. Debt is limited to a share of asset value, with tighter conditions as it rises.
• Independent valuation. The properties are valued by a registered valuer, and the trust publishes a net asset value.

So a REIT is a yield instrument with some growth from rent escalation and new acquisitions. It is not a growth stock with a small dividend.

What India's REIT market looks like

The market is small and concentrated. Six REITs were publicly listed as of mid-2026, most holding office parks in Bengaluru, Mumbai, Hyderabad, Pune and the NCR, and one holding shopping malls. In FY 2025-26, five of them distributed over ₹8,900 crore to unitholders between them.

Two regulatory changes in the past year matter for investors:

• From 1 January 2026, SEBI treats a mutual fund's or SIF's investment in REITs as an equity-related investment, not hybrid. Existing REIT holdings of debt schemes as of 31 December 2025 were grandfathered. InvITs remain hybrid.
• REITs became eligible for equity indices after 1 July 2026. Index inclusion can bring passive money, but it also ties REIT prices more closely to the wider market.

There is also a smaller tier, SM REITs, for single buildings of ₹50 crore and up, with a ₹10 lakh minimum. That is a different product, covered in our post on fractional ownership.

What a REIT pays, and how to judge it

REITs quote a distribution yield: the past year's payouts divided by the unit price. It moves with the price, so a falling unit price shows a rising yield.

For context, the median Direct Growth liquid fund returned 6.47% over the year to 1 October 2026, with almost no price risk. A REIT has to offer something for the risk it adds, and that something is growth: rent escalations, usually built into leases, and occupancy gains. Judge a REIT on three numbers together:

1. Distribution yield, after tax for your slab.
2. Occupancy and lease expiry profile, from the trust's quarterly presentation.
3. Price against the published NAV: buying well above NAV means paying up for future growth.

The rental yield calculator shows what a flat you might buy instead would earn. In metros, gross rent is often 2–4% of a residential property's value, which is one reason commercial property, through a REIT, is the more income-heavy way to hold real estate.

How REIT income is taxed

This is the part that surprises people. A REIT distribution arrives in parts, and each is taxed in its own way:

The trust publishes the split for every payout. Two REITs with the same headline yield can leave very different amounts in your hand, so compare after tax. Selling units is a separate matter: listed units are long-term after 12 months, like listed shares. Our REITs and InvITs guide and the capital gains tax calculator cover the wider rules.

The risks that matter

Interest rates. REITs borrow, and investors compare their yield with bond yields. When rates rise, both the trust's cost of debt and the yield investors demand go up, so unit prices tend to fall.

Office demand. Most listed REIT value sits in offices. A slowdown in technology and services hiring, or a shift to remote work, reaches occupancy with a lag.

Concentration and liquidity. With six names, one trust's problems are a large share of the market. Daily trading volumes in some REITs are thin, so large orders move the price.

Sponsor and manager. The sponsor often keeps a large stake and the manager charges fees. Read the related-party transactions in the annual report.

Where REITs fit

REITs sit between bonds and equity: income like a bond, a price that moves like a share, and a driver, commercial rent, that neither holds. As a small satellite next to equity, debt and gold, they add a different source of return. They are not a substitute for an emergency fund or a fixed-income allocation, because the payout varies and the price falls.

If you already own a flat, a REIT is a way to add commercial property rather than more of the same residential bet. If you are choosing between buying a flat and investing, the arithmetic is in real estate vs mutual funds, and the asset allocation calculator shows how a satellite holding fits next to the rest.

This post is for education only and is not investment or tax advice; it does not recommend any REIT. Past distributions and returns do not predict future ones.