How NRIs Can Benefit from REIT Investments in Indian Real Estate

Navigating the process might be complex for NRIs who wish to invest in India’s real estate market because of legalities, property management, and market changes. Real Estate Investment Trusts (REITs) provide an easy and lucrative choice for NRIs to invest in elite commercial and residential real estate with minimum hassle.

REITs offer an efficient way to capitalise on India’s real estate boom. As the niche evolves, NRIs can use REITs to build wealth while avoiding the obstacles that may come with direct property ownership. Read on to know more!

Understanding REITs: How They Work

Real Estate Investment Trusts (REITs) close the gap between stock market investments and real estate, thus making it simpler to reap benefits out of the real estate segment. Here’s how they work:

• Property Ownership: REITs manage and own a portfolio of various real estate assets, such as office buildings, malls, hospitals, warehouses, and apartments.

• Generating Income: The properties are leased out, and REITs gather rent from the tenants. This rent then becomes the primary income source for REITs.

• Distribution of Income: As per law, REITs need to distribute a minimum of 90% of their taxable income to shareholders in the form of dividends. This implies that investors get a regular income flow.

• Share Market Trading: Various REITs are listed on stock exchanges like NSE and BSE. Hence, investors can purchase and sell off their shares like traditional stocks. This makes REITs liquid when compared to acquiring actual property.

• Types of REITs: There are three types of REITs: equity REITs (owning properties), mortgage REITs (own real estate debt and liabilities) and hybrid REITs (blend mortgage investments and property).

• Capital Generation: REITs procure capital by issuance of shares to the public or via private investors. Then, this capital is utilised for buying or developing real estate assets.

• Professionally Managed: REITs are managed by expert real estate managers who take care of everything from acquiring property, leasing, maintenance and tenant relationships. This alleviates the burden on investors and assures smart operations.

• Returns: Investors can reap returns in two primary ways – dividend income from the REIT earnings and capital growth in case the REIT share prices go up over time.

However, the main focus lies on earning a stable income source.

• Accessibility: REITs tend to democratise real estate investing. Rather than requiring a huge corpus to purchase property, every investor can even commence with small amounts and get exposure to professionally handled real estate.

To sum up, REITs provide an accessible, easy and potentially fruitful method to invest in the real estate niche – perfect for those who wish to earn passive income and diversification benefits without the hassle of being a landlord.

Read Also: REITs in India: A Guide for NRIs Investing in Real Estate

Key Benefits for NRI Investors

For NRIs who wish to invest in the Indian real estate domain without having to go through the complexities that come with owning physical property, REITs provide an easy, smart and effective alternative:

• Currency Benefits for Long-Term Objectives: REITs enable NRIs to build and grow their wealth in Indian rupees, which can be immensely beneficial if they wish to return to India or have future expenditures here, like family assistance, retirement or property purchase.

• No Physical Presence Needed: NRIs can open an NRE/NRO and Demat account to invest in REITs from the comfort of their homes without having to be physically present here. This makes it convenient for NRIs as there is no need to visit India or even physically inspect any property.

• Ideal for All Types of Investors: The steady income stream appeals to conservative NRIs seeking consistent returns, while the potential for capital appreciation attracts growth-oriented investors looking for long-term gains.

• Evolving Market: The Indian REIT segment is still growing as fresh listings and assets are coming into the space. Early investors might get advantages out of long-term growth as the market expands and matures.

For instance, Indian REITs now own 115 million square feet of commercial office and retail space, with a combined market capitalisation exceeding $10 billion.

• Simplicity and Estate Planning: When compared to physical property, REITs can be transferred with ease, inherited, or included in a will, providing better clarity and legacy planning.

Therefore, REITs blend the advantages of real estate with the convenience offered by stock market investing, thus making them a perfect choice for NRIs that prefer a safe, income-fetching and professionally supervised exposure to Indian real estate.

How to Invest in Indian REITs as an NRI

NRIs can easily invest in Indian REITs to get exposure to real estate without acquiring physical property. Here’s how:

• Open a Trading and Demat Account: Select a SEBI-registered broker, open a Demat and trading account and link it to an NRO or NRE account.

• Select Your REIT: You can research various listed REITs, such as Brookfield, Embassy, or Mindspace and opt for the one that aligns well with your preferences and goals.

• Place Your Order: Utilise your trading platform to purchase REIT units, with a minimum investment amount normally around Rs.10,000-15,000.

• Receive Income: Normally, dividends are paid on a quarterly basis and are credited to your linked bank account.

• Know About Taxation: NRIs investing in Indian REITs are subject to 5% TDS on interest income and 10–15% on capital gains, while dividends may be tax-free or taxed depending on the REIT’s structure.

• Repatriate the Funds: ​Funds in Non-Resident External (NRE) accounts are freely repatriable, allowing NRIs to transfer both principal and interest amounts abroad without restriction.
• Review and Diversify: Assess the performance regularly and spread investments through the REITs to alleviate risk.

By following just a few easy steps, NRIs can get a stable income source and real estate exposure in India, which is regulated, professionally managed and easily accessible from any corner of the world.

Read Also: Why NRIs Are Investing in India’s Luxury Real Estate Market

Potential Risks and How to Mitigate Them

Though REITs are a safe choice for NRIs, like any other asset class, they do come with some risks that can be mitigated with well-informed strategies.

• Market Volatility: REIT prices can change because of market trends, so invest for the long term to remain safe from short-term volatility.

For example, ​Embassy Office Parks REIT experienced a significant price decline of approximately 18% in early 2020 due to the COVID-19 pandemic in the commercial real estate sector.

• Limited Capital Growth: REITs emphasise income rather than price growth, so blend them with growth-based investments to strike a balance.

• Tenant Vacancy or Default: Income might be reduced if tenants choose to vacate or default, so select REITs that have high-quality and diversified tenant profiles.

• Regulatory Changes: Government guidelines might affect REIT performance, so be updated and modify your strategy if required.

For instance, the Securities Contracts (Regulation) Act 1956 was amended in 2021 to recognise REITs as borrowers, enabling them to raise debt more effectively.

Conclusion

REIT investments provide NRIs with a low-risk, high-reward entry into the real estate market of India without the hassle of having to acquire the property physically. Also, their ease of entry and exit assures flexibility, which makes them a perfect option for NRIs who value a safe real estate investment.

With the help of REITs, NRIs can reap the benefits of India’s booming property market while sustaining global mobility and monetary efficiency.

Contact our team of experts at Rustomjee to know more about premium properties, REITs and how we can help you in real estate investments. Make the right choice today!

FAQs

• Can NRIs invest in Indian REITs?

Yes. NRIs can invest in Indian REITs through the Foreign Exchange Management Act. They can purchase listed REIT units via stock exchanges with their NRE or NRO accounts, thus reaping benefits out of rental income, capital growth and diversification in the real estate domain.

• How do REITs help NRIs diversify their investment portfolio in India?

REITs allow NRIs to gain exposure to high-value commercial real estate (like office parks and malls) across India, which would otherwise be difficult to access individually. They also offer regular income through dividends and liquidity via trading on stock exchanges, making them a balanced mix of income and capital appreciation.

• Do Indian REITs offer inflation-hedged income for NRIs?

Yes. Since REITs primarily invest in income-generating commercial properties, their rental yields often adjust with inflation through periodic rent escalations, providing NRIs with a relatively stable and inflation-linked income stream.