When friends ask how I get exposure to commercial real estate without buying an office or dealing with tenants, I point them to a reit—a Real Estate Investment Trust. A REIT pools investor money to own and manage income-generating properties such as offices, malls, warehouses, and data centres. The trust collects rent, pays operating costs and debt, and distributes most of the remaining cash to unit holders. Because units are listed on the exchanges, I can buy or sell them through my demat account just like a stock.
What I like first is the visibility of cash flows. High-quality buildings have multi-year leases with escalations, and anchor tenants often belong to stable sectors like IT services, global capability centres, logistics, or consumption. Before I invest, I read the factsheet to check occupancy, weighted average lease expiry (WALE), tenant concentration, and debt maturity. If a portfolio shows 85–90% occupancy with staggered lease renewals and limited tenant dependence, the income stream usually feels steadier.
The second advantage is the way returns stack up. With a reit, I expect two components: distributions (dividends, interest, or return of capital) and potential capital appreciation as rents rise or new assets are acquired. The number I track is the distribution yield: if a unit trades at ₹320 and the last 12 months’ distribution was ₹24, the trailing yield is 7.5%. That’s a useful benchmark when I compare options like high-quality corporate bonds or short-duration funds. For near-term cash needs, I might still invest in bonds to match exact dates; for income with some growth, a REIT can complement fixed income.
Structure and governance matter. A strong sponsor with skin in the game, a diversified property base across cities, and conservative leverage make me comfortable. I study related-party transactions, management fees, and the pipeline of potential acquisitions. When rates rise, financing costs can pressure distributions; trusts that lock in debt at fixed rates or have a laddered maturity profile usually handle the cycle better.
Taxes shape the real yield, so I never rely on headline percentages alone. Distributions typically arrive as a mix—dividend, interest, and occasionally repayment of capital—and each bucket may be taxed differently under current rules. I estimate a post-tax yield using the recent split, then ask whether that figure justifies the risk compared with alternatives. This discipline keeps me from chasing a double-digit number that looks generous but shrinks after taxes.
Risk is part of the package. Unit prices can be volatile because the market treats REITs like equities day to day. Occupancy could dip if a large tenant vacates; rentals may reset lower in a weak cycle; and higher interest rates can dent valuations. I handle this by sizing positions modestly, buying in tranches, and focusing on trusts with diversified tenants and long lease tails. For liquidity, I prefer REITs with healthy trading volumes so I can rebalance without large bid–ask spreads.
How do I actually use a reit in my plan? I treat it as an income core that can keep pace with inflation over time. Distribution escalations and new acquisitions can support gradual growth, while listed units give me flexibility if plans change. I pair REITs with high-grade bonds to build a resilient income stack: I invest in bonds to secure near-term liabilities and add REITs for rental-linked cash flows and the possibility of capital appreciation.
If you’ve wanted real estate exposure without the headaches of ownership, REITs are a practical entry point. Do the reading—occupancy, WALE, debt, tenant mix, and post-tax yield—and think about where the trust fits alongside your fixed-income holdings. Used thoughtfully, a reit can turn India’s commercial property growth into a stream of predictable distributions that lands in your bank account without ever chasing a landlord.
