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REITs Vs Real Estate
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When it comes to building wealth through property, investors often weigh the options of REITs vs real estate to decide which route offers better returns and flexibility.
While traditional real estate requires significant capital, ongoing management, and maintenance, Real Estate Investment Trusts (REITs) provide a hassle-free way to gain exposure to high-quality commercial properties with the added benefits of liquidity and regular income.
In India, the REIT market is rapidly expanding, delivering attractive yields of 6% to 7.5%, making it a compelling alternative for investors seeking steady cash flow without the complexities of direct property ownership.
Difference Between REITs and Real Estate
Comparing Real Estate Investment Trusts (REITs) and direct real estate investments involves weighing distinct trade-offs in returns, risk, liquidity, and management.
Now these differ in different aspects:
REITs vs Real Estate: Investment
| REITs vs Real Estate | REITs vs Real Estate | REITs vs Real Estate |
| Feature | REITs | Direct Real Estate |
| Investment Type | Buy shares of a trust owning income-generating properties | Purchase and manage physical property directly |
| Management | Professional team handles operations | Investor manages tenants, maintenance, and compliance |
| Diversification | Exposure to multiple properties/sectors | Concentrated exposure to a single property/location |
REITs vs Real Estate: Capital Requirement
| REITs vs Real Estate | REITs vs Real Estate | REITs vs Real Estate |
| Feature | REITs | Direct Real Estate |
| Minimum Investment | ₹50,000 | ₹1 crore or more (commercial property) |
| Additional Costs | Minimal (brokerage fees, nominal charges) | Stamp duty, registration, maintenance, property taxes |
| Entry Barrier | Low, accessible to retail investors | High, requires substantial capital |
REITs vs Real Estate: Return
| REITs vs Real Estate | REITs vs Real Estate | REITs vs Real Estate |
| Feature | REITs | Direct Real Estate |
| Annual Yield / Dividend | 6% – 7.5% | 2% – 3% |
| Capital Appreciation | Moderate | Potentially higher, but less liquid |
| Example | ₹10 lakh investment at 7% → ₹70,000/year | ₹10 lakh investment at 3% → ₹30,000/year |
REITs vs Real Estate: Taxation
| REITs vs Real Estate | REITs vs Real Estate | REITs vs Real Estate |
| Feature | REITs | Direct Real Estate |
| Dividend / Rental Income | 90% of net distributable income; taxable per slab in some cases | Rental income taxable; deductions available under Sections 80C & 24(b) |
| Interest Income | Taxable at investor’s slab rate | Not applicable unless mortgage financing is involved |
| Capital Gains | STCG ≤3 years: 15%; LTCG >3 years: 10% (on gains >₹1 lakh) | STCG ≤2 years: as per slab; LTCG >2 years: 20% with indexation |
REITs vs Real Estate: Liquidity
| REITs vs Real Estate | REITs vs Real Estate: Taxation | REITs vs Real Estate: Taxation |
| Feature | REITs | Direct Real Estate |
| Ease of Selling / Exit | High — units traded on exchanges; can sell anytime | Low — legal procedures and property transfer take months |
| Market Risk Management | Can exit quickly during downturns | Hard to exit without significant delays |
REITs vs Real Estate: Which is Better for You
Real estate mutual funds invest in a diversified portfolio of real estate assets, including REITs and real estate stocks.
While both REITs and real estate funds offer exposure to the real estate market, they differ in structure and investment approach.
| REITs vs Real Estate | REITs vs Real Estate: Liquidity | REITs vs Real Estate: Liquidity |
| Feature | REITs | Direct Real Estate |
| Investment Type | Direct ownership of income-generating properties | Indirect investment in real estate-related securities |
| Liquidity | High (traded on stock exchanges) | Moderate (depends on fund structure) |
| Dividend Distribution | Required to distribute 90% of taxable income | Varies by fund policy |
| Management | Professional management | Managed by fund managers |
| Capital Requirement | Low (starting from ₹50,000) | Varies by fund |
If you are interested in investing in REITs in India, then begin your journey now. To start, begin the process of opening a Demat account with a reliable stockbroker.
Still confused about choosing the right stockbroker, fill in your details in the form below:
Conclusion
Choosing between REITs and direct real estate investments depends on your financial goals, risk tolerance, and investment horizon. The purpose of REITs is to offer liquidity, professional management, steady income, and real estate exposure without large capital.
Direct real estate, on the other hand, focuses on long-term wealth creation through property ownership, hands-on involvement, and potential tax benefits.
A young professional in Mumbai with limited capital might find Embassy Office Parks REIT an ideal option, while an experienced investor with substantial capital may prefer buying a commercial property in Pune for long-term appreciation.
Opt for REITs if you value ease, diversification, and lower capital requirements. Choose direct real estate if you want hands-on control and are ready to commit significant funds.
FAQs
Q1. How do REITs differ from direct real estate investments in terms of returns?
REITs typically offer annual dividend yields of 6–7.5%, along with potential for capital appreciation. In contrast, direct real estate investments generally offer lower rental yields (2–3%) but may see higher capital appreciation over the long term.
Q2. Are REITs more liquid than direct real estate investments?
Yes, REITs are highly liquid, as they are traded on stock exchanges, allowing investors to buy or sell units at any time. Direct real estate investments, on the other hand, are much less liquid and can take months to sell.
Q3. Which is a better investment for diversification – REITs or direct real estate?
REITs are better for diversification because they offer exposure to a variety of properties (office, retail, industrial) across different locations, reducing the risks associated with investing in a single property.