So you’re sitting there with some money in your bank account.
And you’re thinking – should I buy that flat in Gurgaon or just put money in REITs?
I get it.
This REITs vs direct real estate investment India debate keeps everyone up at night.
Let me break it down for you like I’m explaining it to my younger brother.
What Are REITs Anyway?
Think of REITs like buying shares of a company.
But instead of making phones or selling soap, this company owns buildings.
Shopping malls, offices, warehouses – you name it.
You buy units of the REIT.
The REIT collects rent from all these properties.
Then they share that rent money with you.
Pretty simple, right?
Direct Real Estate – The Old School Way
This is what your dad probably told you to do.
Buy a flat.
Rent it out.
Collect monthly rent.
Watch the property value go up over time.
Sell it later for more money.
Classic Indian investment strategy.
The Money Talk – How Much Do You Need?
For Direct Real Estate:
- Minimum investment: ₹20-50 lakhs (even for a decent flat in tier-2 cities)
- Down payment: 20-30% upfront
- Plus registration fees, stamp duty, legal costs
- Total upfront cost: ₹25-60 lakhs easily
For REITs:
- Minimum investment: As low as ₹15,000-20,000 per unit
- No hidden costs
- No paperwork headaches
- Start with whatever you have
See the difference?
Returns – Let’s Talk Numbers
Here’s where it gets interesting.
REIT Returns in India:
- Dividend yield: 6-8% annually
- Capital appreciation: 3-5% annually
- Total returns: 9-13% per year (roughly)
Direct Real Estate Returns:
- Rental yield: 2-4% annually (in most Indian cities)
- Capital appreciation: 5-8% annually
- Total returns: 7-12% per year
But wait.
There’s more to this story.
The Hidden Costs Nobody Talks About
When I bought my first property, I thought I was smart.
Until the bills started coming.
Direct Real Estate Hidden Costs:
- Property maintenance: ₹2,000-5,000 per month
- Property tax: 0.5-1.5% of property value annually
- Vacancy periods: 1-3 months per year (no rent)
- Repair costs: ₹10,000-50,000 annually
- Legal issues: Can cost lakhs if tenants don’t pay
REIT Hidden Costs:
- Fund management fees: 1-2% annually
- That’s it.
Seriously.
Liquidity – When You Need Your Money Back
This is where REITs absolutely crush direct real estate.
REITs:
- Sell anytime during market hours
- Money in your account within 2 days
- No paperwork, no lawyers, no drama
Direct Real Estate:
- Can take 6 months to 2 years to sell
- Heavy paperwork
- Legal verification
- Finding the right buyer
- Negotiating price
- Registration process
I’ve seen people stuck with properties for years because they couldn’t find buyers.
Not fun.
Diversification – Don’t Put All Eggs in One Basket
With ₹50 lakhs in REITs:
- You own pieces of 50+ properties
- Across different cities
- Different types – offices, malls, warehouses
- If one property has issues, others balance it out
With ₹50 lakhs in direct real estate:
- You own 1 property
- In 1 location
- If that area goes down, you’re stuck
Which sounds safer to you?
Tax Implications – The Government’s Cut
REIT Taxation:
- Dividends: Taxed as per your income slab
- Capital gains: 10% if held for more than 3 years
- No TDS hassles
Direct Real Estate Taxation:
- Rental income: Taxed as per your income slab
- Capital gains: 20% with indexation if held for more than 2 years
- TDS on rent if rent exceeds ₹50,000 per month
- Property tax every year
Effort Required – Time is Money
REITs:
- Buy once
- Sit back
- Collect dividends
- Check portfolio once a month
Direct Real Estate:
- Find property
- Negotiate price
- Handle legal documentation
- Find tenants
- Collect rent every month
- Handle tenant complaints
- Property maintenance
- Deal with vacancy periods
One is passive income.
The other is a part-time job.
Current REIT Options in India
As of now, we have these REITs listed:
- Embassy Office Parks REIT – Office spaces
- Mindspace Business Parks REIT – IT parks and offices
- Brookfield India Real Estate Trust – Office properties
More are coming.
But the choices are still limited compared to direct real estate.
When REITs Make Sense
You should consider REITs if:
- You have limited capital (under ₹1 crore)
- You want passive income
- You don’t want property management headaches
- You value liquidity
- You want diversification
- You’re busy with your main career
When Direct Real Estate Makes Sense
Go for direct real estate if:
- You have ₹1 crore+ to invest
- You enjoy property management
- You want full control over your investment
- You’re planning to use the property personally later
- You believe in a specific location’s growth story
- You have time to manage tenants and maintenance
The Taxation Deep Dive
Let me give you a real example.
Say you invest ₹10 lakhs.
REIT scenario:
- Annual dividend: ₹70,000 (7% yield)
- Tax (30% bracket): ₹21,000
- Net income: ₹49,000
Direct real estate scenario:
- Annual rent: ₹40,000 (4% yield on a ₹10 lakh property? Good luck finding that)
- Maintenance costs: ₹24,000
- Property tax: ₹5,000
- Net income before tax: ₹11,000
- Tax (30% bracket): ₹3,300
- Net income: ₹7,700
See the difference?
Risk Assessment – What Can Go Wrong?
REIT Risks:
- Market volatility (prices go up and down)
- Interest rate changes affect REIT prices
- Limited investment options in India
- Fund manager performance risk
Direct Real Estate Risks:
- Property price crash in your area
- Difficult tenants
- Legal disputes
- Structural damage to property
- Area development issues
- Liquidity crunch when you need money
Geographic Flexibility
REITs:
- Invest in properties across India
- Tier-1 cities exposure without living there
- Professional property management
Direct Real Estate:
- Limited to areas you can physically manage
- Or hire local property managers (more costs)
- Location risk is concentrated
Future Outlook – What’s Coming Next?
The REIT market in India is just getting started.
More REITs are in the pipeline.
Retail REITs, industrial REITs, residential REITs.
Government is pushing for more REIT listings.
Direct real estate will always be there.
But prices in tier-1 cities are already sky-high.
₹1 crore doesn’t buy you much in Mumbai or Delhi anymore.
My Personal Take
I started with direct real estate.
Bought a flat in Pune in 2018.
The headaches were real.
Tenant issues, maintenance problems, vacancy periods.
Then I discovered REITs.
Now 60% of my real estate allocation is in REITs.
40% in direct properties.
Much easier to sleep at night.
The Bottom Line
If you’re starting out with limited capital, REITs are your friend.
If you have serious money and time, direct real estate can work.
But honestly?
For most people, REITs make more sense.
Less drama, more returns, better sleep.
Frequently Asked Questions
Q: Are REITs safe investments in India? A: REITs are regulated by SEBI and must distribute 90% of income to investors. They’re safer than individual property investments due to diversification.
Q: Can I get a loan to buy REITs? A: No, you cannot get home loans for REIT investments. You need to use your own money.
Q: Which gives better returns – REITs or direct property? A: REITs typically give better net returns after accounting for all costs and efforts involved.
Q: Do REITs pay monthly income like rent? A: No, REITs typically pay dividends quarterly or half-yearly.
Q: Can I claim tax deductions on REIT investments? A: No, REIT investments don’t qualify for tax deductions like home loans do.
Q: What happens if the REIT performs poorly? A: Like any investment, REIT prices can fall. But you still get dividend income from the underlying properties.
Q: Should I invest all my real estate allocation in REITs? A: Diversification is key. Consider a mix of REITs and direct real estate based on your capital and risk appetite.
The choice between REITs vs direct real estate investment India depends on your money, time, and peace of mind preferences.
