REIT Stocks - Definition, Advantages, Factors

Overview of the Top REIT Stocks

DLF Ltd

DLF Ltd is a major real estate developer in India, known for its residential, commercial, and retail properties. The company has a strong presence in key cities and has been a leader in urban development for years, delivering iconic projects that have shaped India’s real estate.

Lodha Developers Ltd

Lodha Developers Ltd focuses on luxury residential and commercial projects. It is famous for its landmark developments in Mumbai and other cities. The company prioritises innovation, design, and sustainability, catering to high-end buyers and investors both in India and internationally.

Prestige Estates Projects Ltd

Prestige Estates Projects Ltd is a leading real estate company in South India. It works on residential, commercial, and retail properties. With over 30 years of experience, the company has built a strong reputation for delivering quality projects in cities like Bengaluru, Chennai, and Hyderabad.

Phoenix Mills Ltd

Phoenix Mills Ltd develops retail-led mixed-use projects. Known for its iconic malls like Phoenix Marketcity, the company creates shopping, entertainment, and hospitality destinations. It has a major role in India’s commercial real estate.

Godrej Properties Ltd

Godrej Properties Ltd is part of the Godrej Group. It develops residential, commercial, and township projects. The company focuses on sustainability and innovation, delivering quality developments in major Indian cities and earning praise for its customer-first approach.

What is REIT Stocks?

REIT stocks are shares in companies that own, manage, or finance real estate assets. These stocks allow people to invest in large, income-generating real estate without owning the properties. The companies usually have a mix of office buildings, shopping malls, apartments, and hospitals. By purchasing REIT stocks, investors own a share of the real estate and earn income from rent or property sales.

Difference Between REIT and Real Estate

1. Ownership: REITs in India offer indirect real estate investment through shares in a company, while direct real estate involves owning physical property.
2. Liquidity: REITs are easily traded on the stock market, offering high liquidity, while real estate is illiquid and harder to sell quickly.
3. Income: REITs in India pay dividends from rental income, whereas direct real estate generates rental income but also involves management responsibilities.
4. Risk and Management: REITs diversify risk across various properties and are professionally managed, while direct real estate involves higher individual risk and requires hands-on management.
5. Taxation: REITs avoid corporate tax on distributed income but may tax dividends as regular income; direct real estate offers tax benefits like depreciation and mortgage deductions.

Who Can Invest in Indian REITs?

1. Any investor (domestic/foreign/retail/institutional) can buy REIT units in India.
2. No minimum trading lot size; the previous minimum trading lot size of ₹50,000 and 200 units has been done away with now.
3. Investors can purchase REIT units through a Demat account, similar to how they would purchase shares in a company.
4. Indian REIT units can be bought/sold freely on NSE – online or through a broker.

How To Analyse Which REITs are Good?

An investor considering REITs in India must assess them based on the following factors:

1. Reputation and Quality of the Developer: REITs are managed by professional teams, and investors should evaluate the quality and experience of the management team. Factors to consider include the team's track record, investment philosophy, and alignment of interests with shareholders.
2. Property Types: The type of properties held by the REIT, which may include offices, malls, hotels, warehouses, and residential properties. This would determine the yield of the properties, the term of the contracts, and the risks involved in managing them.
3. Quality of the Tenants: A significant and stable component of return from REITs is rental income earned from the tenants. Thus, the health and financial strength of the tenants are critical.
4. Diversity of the Tenant Base: A high percentage of total revenue from a single tenant or a high percentage of tenants in the same sector would present a concentration risk for the REIT.
5. Yield Offered: A 3-4% yield would be too low, while 10%+ may be too good to be true.
6. Weighted Average Lease Expiry (WALE): This refers to the number of years left for the lease to expire. Generally, a longer WALE indicates that future income is more predictable and stable. However, a smaller WALE may be beneficial if in-place rents are low and new leases can be negotiated with an aggressive escalation.
7. Occupancy Percentage: Vacant properties do not earn rent. Thus, the higher the occupancy, the better it is.
8. Tenant Retention Percentage: The percentage of tenants who renew their leases after they expire. Higher retention is generally beneficial, as it reduces downtime and lowers re-leasing charges.
9. Leased Area vs Development Area: Future plans of the REIT in terms of expansion and new properties.
10. Geographic Diversification: It may help to eliminate a city-specific risk.
11. Leverage: This refers to the level of debt raised by a REIT to fund its investments. Lesser is generally better.

About the REITs Sector

1. Access to Commercial Property: Before REITs, investing in commercial properties required significant capital, but with REITs, individuals can invest and earn dividends through rental yields at a lower cost.
2. Regulation and Evolution: REIT regulations were established in 2014; however, India’s first REIT emerged five years later. The sector has now been in existence for approximately five years.
3. Market Value: As of May 14, 2025, the total market capitalisation of REITs India exceeded ₹98,000 cr, approximately equivalent to $11.5 bn USD. Despite this, trading volume remains lower than that of many small-cap stocks.

Future Outlook of the Real Estate Investment Trusts in India

1. Growth Potential: The REIT market is forecasted to expand beyond office spaces into asset classes such as industrial properties, data centres, hospitality, healthcare, and education.
2. Policy Support: Policy measures are promoting growth in the REIT market, particularly in India, where over 50% of Grade A office space is considered REIT-worthy.
3. New Listings Expected: The investors are expected to see the listing of at least four new REITs for retail investors in India in the coming years, which could improve asset quality and attract both retail and institutional investors.
4. Stock Market Performance Influence: The timing of these new REIT listings may depend on the performance of the stock markets, influencing market conditions and investor sentiment.

How does a Company Qualify as a REIT?

To qualify as a REIT, a company must meet specific criteria, including the following:

1. The entity must be structured as a business trust or a corporation.
2. The company must offer fully transferable shares.
3. Management should be carried out by a board of trustees or directors.
4. The company must have at least 100 shareholders.
5. No more than 5 individuals should hold 50% of the company’s shares during any taxable year.
6. At least 90% of the taxable income must be distributed as dividends.
7. A minimum of 75% of gross income should come from rental income or mortgage interest.
8. No more than 20% of the company's assets should consist of stock in taxable REIT subsidiaries.
9. At least 75% of the company’s assets must be invested in real estate.
10. A minimum of 95% of the total income of the REIT must be reinvested.

How do REITs Work?

REITs pool money from investors and use that money to buy income-generating properties. These properties are then leased to tenants, and the rental income is distributed to investors as dividends. REITs are required to distribute at least 90% of their rental income to investors and are exempt from paying income tax on that income.

REITs in India provide regular income and steady capital appreciation through the properties they own. Thus, it works like a hybrid product between Equity and Fixed Income.

What Assets can an Indian REIT Own?

1. Real estate projects earning rental income, including commercial projects such as offices, hotels, retail, industrial, and healthcare.
2. REITs in India are not permitted to invest in residential (houses, apartments) or speculative land banks.
3. Minimum of 80% of the REIT's assets must be invested in completed and revenue-generating properties. The remaining 20% can be invested in under-construction properties or other permissible assets
4. Unit holder approvals are needed for debt to capitalisation above 25%, and debt to capitalisation is capped at a maximum of 49%.

Conclusion

In conclusion, REIT stocks in India are linked to the performance of real estate assets and are subject to various market dynamics. These stocks offer characteristics such as liquidity and diversification, though they also carry risks, including market volatility. Understanding these factors is essential when considering investments in the REIT sector. Therefore, when investing in REITs, it is important to conduct a thorough analysis. For that, you can visit Tickertape Stock Screener.