Money Wise: You Should Consider Grabbing A Slice Of Real Estate
While it would be difficult for you to own an office building – even a small one would cost a few hundred crore – you could own a slice of it through a REIT.
In the realm of investments and personal finance, there are a few arguments that recur ever so often and will likely continue to do so in perpetuity. There’s gold, of course. And then there’s real estate. What I find interesting is that the tenor of these arguments has shifted in recent times – from whether or not a residential apartment is a good investment to whether buying a property is something to consider in the first place.
Even 15 years ago this would have been unthinkable. After all, you need to buy a house some day, no? But the flexibility and fungibility of employment that Covid-19 heralded led to a change in mindset. The young (and restless) decided they didn’t want to be tied down with a mortgage that could take between 10 and 20 years to repay. I know I’m painting in broad strokes. There’s a lot more nuance at play. And I don’t want to wade into that argument in any case. Rather, I want to talk about fractional ownership of real estate.
In recent weeks, REITs or real estate investment trusts keep popping up as a conversation point. The latest trigger is the move by the Securities and Exchange Board of India to tag them as equity for the purposes of investments. This means that the mutual fund industry, with lakhs of crores of assets under management, has more reason to consider investing in REITs.
For the uninitiated, REITs are entities that pool physical real estate assets – kind of like what mutual funds do with other asset classes like equity and bonds. So while it would be difficult for you to own an office building – even a small one would cost a few hundred crore – you could own a slice of it through a REIT.
On my show 'Money Wise' this week, I spoke with Ramesh Nair, the managing director and CEO of Mindspace Business Parks REIT. We discussed the progression of these entities in the Indian landscape – there are only five currently listed compared with over 225 in the US. The Indian REITs are also primarily focused on office space.
Nair’s REIT has returned 24% in fiscal 2026 and over 30% over the past 12 months. This is, of course, not normal. Certain factors that had proven a drag on REITs are being cleared up slowly. Not least of which, the issue of property owned by REITs in Special Economic Zones. I won’t go into too many details here – we discussed it in our conversation. But club the return with the income distributed and what you’ve received as a unitholder in Mindspace REIT over the last five years suddenly becomes very lucrative.
And the distribution is a key point to consider. REITs are mandated to distribute 90% of their income after expenses to unitholders. The primary income of an REIT is the rent it collects as a landlord. Now, the REITs currently listed primarily own office space. So if you’re investing in them, you’ll not be buying a slice of a home, but rather of a building that might be rented out to an IT or financial services company. That’s not a bad thing. Rental yields – rent received per year as a percentage of the value of the property – of office buildings are much higher than residential yields.
Do be aware of the tax treatment though. There are two ways gains could be treated. If the REIT has moved to a lower corporate tax structure, all the dividends paid out are taxable in the hands of the unitholder. Meanwhile, the capital gains are taxable the same way as equity – 12.5% if held for more than a year.
On the other hand, if the REIT hasn’t transitioned, like Mindspace REIT, there’s a different structure. Pure dividends, which are 60% of the payout to unitholders, are not taxable. The interest component is about 5% of the total – which is taxable at slab rate. And the remainder is capital repayment. This is set off against the original acquisition cost of the REIT and will factor in the calculation of capital gains tax at the time of sale. For example, if the cost of an REIT was Rs 100 and the amount received through capital repayment was Rs 10. At the time of sale – let’s assume the price was Rs 120 – the cost for the purposes of calculation of capital gains would be seen as Rs 90 and the gains would be Rs 30.
The bottomline is that with more potential buyers, there should be better price discovery of REITs. Mutual funds have been increasing their ownership. And if you’re building a long-term portfolio, there’s no reason you shouldn’t consider adding them too.
As always, your thoughts are welcome.
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