Post liberalization, a spate of reforms initiated by the successive governments, particularly a spate of regulatory reforms for the real estate sector, undertaken by the Modi government, have made real estate ownership truly inclusive by making realty affordable and accessible to millions of real estate and home seekers.
Vinod Behl
Physical property had been out of the reach of most of the retail investors because of high prices and associated risks related to safety of investment, due to the unregulated real estate sector. But the landmark reform of Real Estate Regulation Act (RERA) of 2017, completely changed the opaque and risky real estate investment landscape, making property investments regulated and secure.
Further in the evolving real estate landscape, the advent of niche real estate segments- REITs (Real Estate Investment Trusts) and Fractional Ownership, completely revolutionised the real estate investment landscape by democratizing the property ownership. These two distinct properties buying models, in a short span of time, have made realty ownership truly inclusive.
REITs became a realty in India in 2019 with the launch of Embassy Office Parks REIT. Today there are 4 operational REITs- Brookfield India REIT, Mindspace Business Parks REIT, Nexus Select Trust REIT, in addition to Embassy Office Parks REIT. The IPO for the fifth REIT (Knowledge Realty Trust REIT)- the largest so far, was launched on August 7.
In just seven years of their inception, REITS have established themselves as a highly attractive asset class for retail investors. This is clearly evident from their immense popularity. Today the market cap of REITs which collectively manage over 129 msf of Grade A office and retail assets, has topped INR 1 lakh crore. Their overwhelming success can also be gauged from the fact that the Knowledge Realty Trust REIT IPO was oversubscribed 13 times. This speaks volumes about the growing appetite for REITs among retail investors.
REITs have made it possible for retail investors to indirectly own expensive real estate which has been out of their reach. They can now own it by buying the units (shares) of REITs through their stock market account like buying shares at a small investment. Besides easy ownership, there are other reasons which endear REITs to retail investors. REITs provide stable returns in the form of capital appreciation and rental returns. According to SEBI and Stock Market data, REITs have given around 7% annual yield and double digit (12-13%) returns. The high returns are made possible by the regulatory clause that binds REITs to invest 80% of their total investor money into high-yielding commercial real estate assets and distribute 90% of their post-tax profits to investors by way of dividend. REITs have distributed over INR 24300 crore of profits to investors since inception. In Q1 FY26, REITs distributed INR 1371 crore of profit to unit holders.
Professionally managed REITs help investors tap the high potential real estate sector to create long-term wealth without the risks associated with the ownership of physical real estate. Unlike physical real estate, entry and exit are much easier in REITs. One can digitally buy REIT shares quickly and conveniently like other stock shares. In view of their growing popularity, REITs have now expanded their scope with SM REITs which provide retail investors an opportunity to invest in high quality lucrative properties by way of pooling investments through a group of investors The threshold limit for investment is INR 10 lakh.
The concept of Fractional Ownership has further made property ownership more affordable and inclusive. Through this niche model, retail investors can combine their resources to collectively own the high value properties with promising returns. Be it pre-leased grade-A offices, SCOs, retail outlets in gated societies, studio apartments or Second homes/luxury holiday homes. Now the concept of fractional ownership is expanding to newer segments like warehousing. Those who are unable to buy full property, can own property by buying a part of it. Retail investors can invest in various segments of real estate with an investment as low as INR 10 lakh and reap average rental yield of 8-12%. In view of growing popularity, several fractional platforms have come up to facilitate retail investors.
Pradhan Mantri Awas Yojna (PMAY ), part of the government’s flagship programme of ‘Housing for All’, has played a significant role in democratizing property ownership by improving home affordability. For first time home buyers of affordable housing (priced below INR 45 lakh), the government introduced interest subsidy of INR 2.67 lakh under CLSS (now reduced to INR 1.80 lakh under PMAY 2.0).
Though more and more retail investors are turning to REITs for structured, safe and high yielding investments, yet a large potential of REITs remain untapped. Of 520 msf, only 23% of total REITable office stock in top cities is listed. Further, the growing scope of redevelopment of aged commercial properties and phenomenal growth of Grade A and green commercial real estate, presents huge opportunity for the growth of REITs and Fractional Ownership, providing further impetus to the process of democratization of real estate ownership.