What are REITs?
Real Estate Investment Trusts (REITs) are pooled investment vehicles like mutual funds. However, the REITs, as the name suggests, invest in real estate. Thus, it is another way to invest in real estate. REITs are required to be listed, traded on stock exchanges, and can be bought and sold just like shares of any listed company.
- Equity REITs: Focus on operating and managing income-generating commercial properties.
- Mortgage REITs: Involved in lending money and extending mortgage facilities, earning income from interest.
- Hybrid REITs: Combine elements of both equity and mortgage REITs, generating income from rent and interest.
- Private REITs: Function as private placements for select investors, not traded on exchanges or registered with SEBI.
- Publicly Traded REITs: Shares are listed on the National Securities Exchange and regulated by SEBI. These shares can be bought and sold by individual investors through the NSE.
- Public Non-Traded REITs: Registered with SEBI but not listed on the National Stock Exchange. They offer less liquidity than publicly traded REITs but are more stable since they are not affected by market fluctuations.
What are INVITs?
Infrastructure Investment Trusts (INVITs) are a type of investment vehicle that allows investors to invest in infrastructure projects. The main objective of INVITs is to provide retail investors with access to investment opportunities in infrastructure projects, which were previously only available to large institutional investors. INVITs offer investors the opportunity to invest in a diversified portfolio of infrastructure projects, which can provide stable income streams and potential capital appreciation over the long term. At the same time, it helps infrastructure projects tap into household savings.
Types of INVITs
Investment in Revenue-generating Finished Projects – One of the types allows investment in revenue-generating finished projects and tends to invite investors through a public offering.
Investment in Projects under Construction –
Additionally, investors are also allowed to invest in projects that are under construction or have been finished. Notably, this type opts for a private placement of its units.
Global Market
As of FY 2025, InvITs in India manage $73.3 billion, significantly more than the $20.6 billion by REITs. Combined, their AUM is $93.9 billion, up from $42.1 billion in FY 2020.
India ranks fourth in Asia for REITs and InvITs, following Japan, Singapore, and Hong Kong.
InvITs, crucial for infrastructure funding, pool resources from investors. India has five REITs and 17 InvITs with a market cap of $33.2 billion. Globally, there are over 1,000 listed REITs and InvITs with a market cap of nearly $3 trillion.
Challenges faced by Investors
1. Market Volatility – Like other traded securities, REITs are subject to market volatility, and their prices can fluctuate.
2. Interest Rate Fluctuations – Interest rate changes can impact the cost of borrowing for REITs, affecting profitability.
3. Economic Factors – Economic conditions, including GDP growth and employment rates, can affect property demand and rental income.
Types of Risk Involved
Regulatory Risk – Even the slightest change in the regulatory framework like taxation or policies concerning the infrastructure sector would have a ripple effect on REITS and InvITs.
Inflation Risk – A high rate of inflation has a significant impact on the performance of infrastructure investment trusts and real estate. For instance, inflation may increase the sector’s operating costs. Further, an increase in the toll rates would lower the prospect of generating substantial returns.
REITs & InvITs
Asset Risk – Typically, investment in real estate and infrastructure has a long gestation period, and hence the process of generating returns is often delayed. Such a delay not only takes a toll on the cash flow but further hampers profit projections.
Who Should Invest?
REITS and InvITs are ideal for a certain group of
investors based on their financial goals and risk tolerance.
Suitable for
Income-seeking investors: If you’re looking for regular income through dividends or interest, REITs and InvITs can be a good choice. They provide steady cash flow from infrastructure and real estate projects.
Long-term investors: These instruments are more suitable for those who plan to stay invested for a longer period. Real Estate and Infrastructure projects typically generate income over the long term.
Moderate risk investors: While REITs and InvITs offer stability, they still come with some risks, such as changes in project performance. If you’re comfortable with moderate risk, REITs and InvITs might be for you.
Not suitable for
Short-term investors: If you’re looking for quick returns
Need high liquidity InvITs may not be ideal.
Taxation
1. Dividend Income
If the SPV opts for the concessional tax rate regime under Section 115BAA, dividend income is taxable for unit holders at applicable slab rates. If the SPV does not opt for the concessional tax rate regime under Section 115BAA, the dividend income is exempt for unit holders.
10% TDS will be applicable for dividend paid to resident unit holders if the amount exceeds ₹5,000 p.a. (₹10,000 p.a. from FY 2025-26 onwards)
2. Interest Income
Interest income earned by unitholders from REITs is taxable as per the applicable slab rates.
10% TDS is deducted if interest income exceeds ₹5,000 p.a. (₹10,000 p.a. from FY 2025-26 onwards)
3. Capital Gains
Short-Term Capital Gains (STCG): Gains from selling REIT units held for less than one year are taxed at 20%.
Long-Term Capital Gains (LTCG): Gains from selling REIT units held for more than one year are taxed at 12.5% if they exceed ₹1.25 lakh annually. Indexation benefits are not available.
4. Rental Income
Rental income distributed by REITs is taxed at the applicable slab rates to the unit holder.
10% TDS is deducted on rental income.
Top Listed REITs and INVITs Listed REITs –
- Embassy Office Parks REIT: The first to be listed in India, back in 2019.
- Mindspace Business Parks REIT: Listed in 2020.
- Brookfield India REIT: Listed in 2021.
- Nexus Select Trust: Listed in 2023.
- 360 ONE Real Estate Trust: A newer addition to the listed REITs.
SEBI Registered INVITs –
- IRB InvIT Fund
- IndiGrid Infrastructure Trust (India Grid Trust) Energy Infrastructure Trust
- Data Infrastructure Trust
- Digital Fibre Infrastructure Trust
- Oriental InfraTrust
- Interise Trust
- IRB Infrastructure Trust
- Maple Infrastructure Trust
- National Highways Infra Trust (NHIT)
- Roadstar Infra Investment Trust
- PowerGrid Infrastructure Investment Trust (PGInvIT) Shrem InvIT
- Highways Infrastructure Trust
- Anzen India Energy Yield Plus Trust
- SchoolHouse InvIT
- Cube Highways Trust
- Indus Infra Trust
- Intelligent Supply Chain Infrastructure Trust
- NDR InvIT Trust
- Athaang Infrastructure Trust
- Sustainable Energy Infra Trust
- Nxt-Infra Trust
- Capital Infra Trust
- TVS Infrastructure Trust
- Anantam Highways Trust
Conclusion
InvITs and REITs are no longer niche products in India. They are becoming a core part of diversified portfolios for both institutional and retail investors looking for yield- based investing opportunities. They offer an efficient and lucrative way to invest in real estate without direct ownership or management responsibilities. While the taxation of there income can be complex, strategic planning and professional advice can help investors minimise tax liabilities and maximise returns.
As always, investors should align these investments with their risk appetite and financial goals. With the right due diligence, REITs and InvITs can be a valuable addition to a yield-focused investment strategy.
