Real Estate Investment Trusts (REITs) operate as mutual funds for real estate assets, allowing investors to purchase units through demat accounts rather than directly buying properties. According to Knowledge Realty Trust CFO Neeraj Toshniwal, speaking on NDTV Profit's Your Money Matters, REITs pool investor money to own commercial properties through special purpose vehicles (SPVs). For example, Knowledge Realty Trust owns office assets across Mumbai, Hyderabad and Bengaluru, providing investors with fractional ownership of commercial portfolios rather than single properties. In India, REITs are broadly classified into three main categories: Equity REITs that own and operate physical income-generating properties such as office parks, malls, and warehouses (most listed REITs in India fall into this category including Embassy Office Parks, Mindspace Business Parks, and Brookfield India Real Estate Trust); Mortgage REITs (mREITs) that lend money to real estate owners or invest in mortgage-backed securities generating income from interest; and Hybrid REITs that hold both physical properties and real estate loans for broader diversification. Publicly listed REITs trade on the NSE and BSE, offering the highest liquidity as units can be bought and sold during market hours.
REIT investors primarily earn returns through rental income from commercial properties. As reported by Toshniwal, commercial tenants pay rent to REIT-owned properties, with most income distributed to investors after expense deductions. The Knowledge Realty Trust currently distributes 100% of income to unit holders, exceeding the mandatory 90% distribution requirement under SEBI regulations. Current sector yields typically range between 5.5% and 6% annually, distributed quarterly to investors. Investors earn income through two primary channels: regular dividend income from rental collections and capital appreciation when REIT unit values rise on the exchange. Because Indian REITs must distribute at least 90% of net distributable cash flows, investors receive a steady income stream rather than waiting for lump-sum returns, making them more liquid than direct property ownership.
Commercial REITs benefit from built-in rental escalations that boost cash flows over time. According to Toshniwal, a significant portion of leases include annual or periodic rent increases, helping enhance returns. The Knowledge Realty Trust currently maintains approximately 92% occupancy across its portfolio, supported by Global Capability Centres (GCCs) that continue leasing premium office space across India's major cities. As reported by Toshniwal, the last few quarters have seen positive momentum from GCC demand pushing the portfolio performance. The pass-through model ensures the trust itself does not pay corporate-level tax, provided it distributes the minimum required percentage of its income, with tax instead applied to unit holders based on the nature of income received and holding period.
REIT distributions consist of multiple components with varying tax treatments. According to Toshniwal's analysis, approximately 55%-60% of distributions are currently tax-free dividends, around 20% is treated as repayment of capital, while the balance is taxed as interest at the investor's applicable tax slab. For resident Indian investors, REIT distributions fall into three categories with tax treatment varying by jurisdiction and income level. The exact composition varies from REIT to REIT and is disclosed to investors periodically, making REITs more complex than traditional stocks in terms of tax implications. This tax structure makes REITs more accessible to retail investors compared to direct property ownership, as they offer transparent, regulated routes to commercial real estate investment.
REITs offer several advantages over physical property investment, including elimination of large ticket-size requirements, tenant management hassles, and registration paperwork. As reported by Toshniwal, investors can gain commercial real estate exposure through listed instruments that can be bought and sold like stocks. The trade-off involves understanding the REIT structure, risks, and tax treatment before treating them as a simple substitute for property ownership. For simple diversification, REITs provide an alternative way to participate in India's commercial real estate market without the traditional barriers of property ownership. Investors can access REITs through multiple routes: purchasing units directly on NSE or BSE through a demat account, investing via mutual fund schemes that hold REITs, or using SEBI-registered brokerage platforms such as PL Capital. REITs have opened commercial real estate to investors who previously had no practical way to access it, offering low entry points, exchange-listed liquidity, and mandatory distribution structures that suit investors seeking steady income, portfolio diversification, or long-term real estate positions.
