REITs and InvITs, Listed Alternatives to Direct Real Estate

Direct real estate in India is illiquid, lumpy, hard to value and slow to sell. A flat in Pune gives you no quarterly report, no audited accounts and no exit button. Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) were built to fix exactly that: rent and toll income in a listed, regulated, transparent wrapper you can buy one unit at a time.

SEBI created the framework in 2014, the first REIT listed in 2019, and by 2026 five REITs and a larger number of InvITs trade on NSE and BSE, with combined assets that industry bodies put above ₹9 lakh crore. From January 2026 SEBI also treats REITs as equity for mutual fund investment, which opens the door to index inclusion. Here is how they work and how to judge one.

How REITs work: the structure

1. SponsorA developer contributes completed buildings to the trust.
2. Trust and managerAn independent trustee holds the assets; a manager runs them.
3. Property companiesBuildings usually sit in special purpose companies owned by the trust.
4. Tenants pay rentLeases, often multi year, with built in escalation.
5. Unitholders get distributionsAt least 90% of distributable cash flow, usually every quarter.

SEBI's REIT Regulations require, among other things:

• At least 80% of assets in completed, income producing properties.
• Distribution of at least 90% of net distributable cash flow to unitholders.
• Independent valuation of the properties, with full valuations published regularly.
• Limits on borrowing, and a vote of unitholders for larger borrowing.

India's listed REITs

Four of India's five listed REITs own office parks, leased largely to global companies' Indian technology and service centres in Bengaluru, Mumbai, Pune, Hyderabad, Chennai and the National Capital Region. One owns shopping malls across many cities. There is no listed residential, hospital or data centre REIT yet. That concentration matters: Indian REIT income is tied closely to office demand, which in turn tracks hiring in technology and global services.

InvITs: infrastructure's answer to REITs

An InvIT applies the same idea to infrastructure: toll roads, power transmission lines, gas pipelines, telecom towers and fibre, renewable energy plants. The cash flows are long dated and often regulated or contracted, which makes them behave in part like a bond. Unlike a bond, the assets wear out, concessions end and traffic or tariffs can disappoint, so part of each distribution is often a return of your capital, not income.

Most InvITs are privately placed with institutions; a smaller number are listed and open to individuals. SEBI cut the minimum investment in privately placed InvITs to ₹25 lakh in 2025. For mutual fund purposes InvITs remain a hybrid instrument, not equity.

REITs vs direct real estate: the honest comparison

REIT taxation in India

REIT units are listed and traded with STT, so capital gains follow the listed equity rules since 23 July 2024: 20% on gains within 12 months, 12.5% on long term gains above the ₹1.25 lakh yearly exemption. Distributions are different, because each payment is split into parts with different tax treatment:

• Interest from the property companies: taxed at your slab rate, with TDS.
• Dividend from the property companies: exempt in your hands if the company has not opted for the concessional corporate tax regime, otherwise taxed at slab.
• Repayment of debt or return of capital: rules changed in 2023 and now tax much of this in many cases; the notice for each payment tells you the split.
• Rental income where the REIT holds property directly: taxed at slab.

Compare the after tax figure with the alternatives. With the 10 year government bond near 7.2% in October 2026, also taxed at slab, a REIT yielding about 6.3% before tax is priced for its rents to grow. That is the bet you make: that rent escalations and new leasing lift distributions over time, which a fixed coupon bond can never do, in exchange for daily price swings and office cycle risk.

Why interest rates move REIT prices

A REIT is valued mostly on its future distributions, and investors compare that income stream with what safe bonds pay. When government bond yields rise, as they did to around 7.2% in early October 2026 after the RBI's hike, a REIT's distribution yield has to rise to stay attractive, and with distributions fixed in the short run, the only way is for the price to fall. A rough rule: if investors demand the yield spread to bonds to stay the same, a one point rise in bond yields on a REIT yielding 6.5% implies a price fall in the region of 13% to 14%, before any change in rents.

Rents rarely stand still, which is the offset. Office leases in India commonly carry escalations every few years, and occupancy recovers after a cycle. That is why REITs sit between bonds and equities in behaviour: rate sensitive like a long bond, with growth in the income like a business.

Worked example: reading a distribution notice

Say you hold 1,000 units and a quarterly notice announces ₹6 per unit, split as ₹3.60 interest, ₹1.80 dividend and ₹0.60 repayment of debt. You receive ₹6,000 before TDS. Under the illustrative split, ₹3,600 is interest taxed at your slab, ₹1,800 is dividend that may be exempt depending on the property company's tax regime, and ₹600 follows the repayment of debt rules. Report each part in its own place in your return. Investors who enter the whole ₹6,000 as one figure usually overpay or underpay.

Common mistake: buying the highest yield

The common mistake is picking the REIT or InvIT with the highest distribution yield. A high yield can mean the market expects distributions to fall, or that much of the payout is your own capital coming back. Check occupancy, lease expiries over the next three years, debt levels and what share of the distribution is true income.

With InvITs especially, ask what happens when the concession or licence ends. A toll road InvIT with eight years left on its concession is a declining asset; its distributions must repay your capital as well as pay a return.

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