You are walking through a buzzing city on a regular weekday. Maybe it’s Mumbai, where towering skyscrapers and colonial-era buildings tell stories or Pune, where IT hubs and exquisite residential complexes blend a cosmopolitan energy with a quieter lifestyle, or Hyderabad (where HITEC City stretches across wide roads. That instant, irresistible pull we feel while watching these marvellous infrastructures makes us think, “One day, I will own a piece of this city”, but the very next second gives a taste of reality: property prices soaring beyond imagination. Buying even a flat or a fraction of a commercial building requires crores of rupees.
That barrier was broken in 2019 when India revolutionised the real estate market for retail investors through real estate investment trusts (REITs). Investing in high-value commercial properties has now become just one click away, all because REITs completely flipped the script. This story provides a historical perspective on REITs: how they started and how they evolved.
What are REITs?
Real estate investment trusts (REITs) are investment tools that allow you to invest in income-generating properties, such as business parks, hotels, or shopping malls. These properties generate rental income from companies leasing the space, and that income is distributed to REIT investors, usually in the form of dividends.
Instead of investing lakhs and crores in real estate, you invest a small amount in a REIT, which pools capital from thousands of investors like you. For example, isn’t it brilliant that you only have to invest ₹10,000 into an apartment that may cost you ₹1 crore? A REIT makes it possible.
How REITs started as an investment option
Let’s rewind to the 1960s in the United States of America to understand how REITs came into being.
Year 1960: The REIT Act
The American president Dwight D. Eisenhower passed the REIT Act, allowing regular investors to participate in large-scale, income-generating real estate through listed entities called REITs. It was a game-changing moment for the common people, and by extension, for India too, though the story took a little longer to unfold.
Year 1960-1961: Initial REITs debut in the USA
The first REITs were created. They are Bradley Real Estate Investors, Continental Mortgage Investors, First Mortgage Investors, First Union Real Estate, Pennsylvania Real Estate Investment Trust, and Washington Real Estate Investment Trust.
Year 1965: First NYSE-listed REIT
“Continental Mortgage Investors” became the first REIT that listed on the New York Stock Exchange (NYSE).
Year 1966-2007: The global expansion of REITs
Other countries like the Netherlands (1969), Australia (1971), and Canada (1993) joined the same trend. Later, Japan (2001), France (2003), Germany (2007), and the U.K. (2007) introduced REIT frameworks, turning Asia into a growing REIT hub.
Year 2007 onwards: India laid the groundwork for REITs
SEBI began exploring REIT regulations, but faced delays due to tax uncertainties and the global financial crisis of 2008.
Year 2014: SEBI introduced REIT regulations in India
SEBI officially notified the REIT regulations, providing the first legal framework for REITs in India, setting rules for governance, structure, and asset criteria.
Year 2016–2018: Regulatory updates and tax clarity
SEBI introduced regulatory updates and clarified tax treatment of REIT income, addressing key hurdles for market readiness.
Year 2019: India’s first REIT listed – Embassy Office Parks REIT
Embassy Office Parks REIT became India’s first publicly listed REIT in April 2019. It was co-sponsored by Embassy Group and Blackstone Group and focused on rent-generating commercial office space.
Year 2020–2023: The growth of REIT in the Indian market
Mindspace Business Parks REIT (2020) and Brookfield India REIT (2021) succeeded it. By 2023, India had three listed REITs with increasing retail investor participation and growing institutional interest.
Year 2023–2025: Introduction of Small and Medium REITs (SM REITs)
SEBI introduced smaller-ticket REITs (SM REITs) in 2024, enabling fractional ownership models for retail investors.
Over time, REITs expanded globally, with over 40 countries today having REIT frameworks in place.
Why REITs started as an investment option
Think about the high ticket size (you can’t just invest ₹50,000 in a flat, right?), the lack of liquidity (you can’t sell a house overnight), and no consistent rental income (forgot about the deadbeat tenants?). There were just too many challenges for regular investors that made the process anything but friendly.
The following table gives how REITs solved the challenges for investors when it came to traditional real estate investing.
Traditional real estate vs REITs: A comparison
| Traditional real estate | How REITs solved it |
| You couldn’t just invest ₹10,000 in a flat. You needed lakhs or crores. | REITs allow you to invest with just a few thousand rupees. |
| Selling a property can take months, if not longer. | REIT units are listed on stock exchanges, where you can buy or sell them easily like stocks. |
| Tenants default, properties remain vacant, and maintenance can chip away your returns. | REITs distribute rental income regularly as dividends, with no tenant-related drama. |
| Dealing with agents, unclear titles, and legal red tape is exhausting. | REITs are regulated by SEBI, following strict reporting norms. |
| Owning property means managing tenants, maintenance, and legal issues. | REITs are professionally managed, so you get the benefits of ownership without operational headaches. |
| Buying one property ties up all your capital in a single location. | REITs invest in multiple properties across locations and sectors, reducing risk. |
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However, reliability and safety concerns, another challenge, trailed behind. That’s when the Indian market regulator, the Securities and Exchange Board of India (SEBI) stepped in.
SEBI’s REIT regulations over the years
Since day one, SEBI has set clear rules and regulations to promote transparency and protection of your REIT investments.
Key SEBI regulations about REITs every investor must know
1. SEBI (Real Estate Investment Trusts) Regulations, 2014
The first set of REIT regulations laid down rules for structure, minimum asset size, income distribution, and governance.
- A minimum of 80% of REITs total assets must be invested in income-generating real estate properties.
- 90% of REITs’ earnings and asset sale gains (unless reinvested within a year) must be distributed to unitholders every six months.
- REITs are prohibited from investing in agricultural lands, mortgages (except mortgage backed securities), and other REITs.
- It must be listed on the stock exchanges, follow IPO rules, and allow fractional ownership for small investors.
- It’s mandatory to appoint a trustee, a professional property manager, and strong governance and disclosure standards to protect unitholders’ interests.
2. SEBI (Real Estate Investment Trusts) Regulations, 2016
SEBI made amendments to the original regulations to improve the framework.
- REITs can invest up to 20% (up from 10%) of their assets in under-construction properties.
- The concept of “strategic investors” was introduced to secure support from the institutional investors.
- Allowed multiple sponsors (instead of a single sponsor), offering greater flexibility in structuring the REIT.
3. SEBI (Real Estate Investment Trusts) Regulations, 2019 (Amendments)
- The minimum subscription size for investors in public REIT issues was reduced from ₹2 lakh to ₹50,000.
- The minimum lot size was decided at 100 units.
- The sponsors’ units are subject to lock-in to ensure they don’t suddenly exit.
- REITs were allowed to raise debt through various instruments.
4. SEBI (Real Estate Investment Trusts) Regulations, 2021 (Amendments)
- The minimum subscription amount was lowered to a range of ₹10,000 – ₹15,000.
- The minimum lot size was reduced from 100 units to 1 unit to allow ease of trading.
- The aggregate leverage was capped at 49% of asset value, but if it exceeds 25%, the REIT must obtain a credit rating and unitholders’ approval.
5. SEBI (Real Estate Investment Trusts) Regulations, 2023 (Amendments)
- Introduced small and medium REITs (SM REITs) for smaller investors and developers, with a minimum asset value of ₹25 crore.
- Investors holding ≥10% units can nominate a director to the REIT manager’s board.
- Simplified the registration, disclosure, and reporting norms for SM REITs.
- Strengthened grievance redressal mechanisms.
These evolving regulations have made REITs a legitimate investment option.
Changes in the taxation of REITs in India
As an investor, there’s one thing you can’t ignore: taxes. They can really impact what you end up taking home. The key REITs taxation updates over the years are given below.
Before 2020: Tax-free for investors
When REITs were first introduced in India, the tax setup was pretty favourable for investors. The dividends you received from the REITs were totally tax-free, thanks to the pass-through status. It meant that Special Purpose Vehicles (SPVs) had already paid corporate tax, avoiding double taxation.
After 2020: Dividend taxes come into play
The Finance Act of 2020 introduced amendments to the Income Tax Act, 1961, where the REIT income received by unitholders becomes taxable, unless SPV opts for Section 115BAA. Dividends distributed by SPVs to REITs (and subsequently to unitholders) are added to the unitholder’s income and taxed according to their individual slab rates.
Year 2023
The Finance Act of 2023 introduced Section 56(2)(xii) to address tax avoidance involving REIT distributions.
The non-income REIT distributions (capital repayments or amortization of debt) were previously not taxed in the hands of unitholders. Under the new provision, such distributions are now taxable as “Income from Other Sources” in the hands of unitholders.
Year 2024
The Union Budget 2024 aligned REITs with equity funds, changing its taxation aspect.
| Long-term capital gain (LTCG) | >1 year | Taxed at 12.5%, if they exceed ₹1.25 lakh annually.* |
| Short-term capital gain (STCG) | <1 year | 20% |
*Taxed without indexation
Year 2025
A 10% TDS will apply on interest income exceeding ₹10,000 per annum, effective from FY 2025-26. Also, capital gains taxation will continue as per existing norms into 2025. The TDS threshold for dividend income is increased to ₹10,000 per annum starting FY 2025-26.
Also read: Income From Real Estate Investment Trusts (REITs) and its Taxation
REITs taxation in India: A summarised view
| Type of distribution | Taxability | Relevant provision |
| Dividend (SPV not under 115BAA) | Exempt | Section 10(23FC) |
| Dividend (SPV under 115BAA) | Taxable in investor’s hands | As per slab rates |
| Interest income | Taxable in investor’s hands | Section 10(23FC) |
| Non-income distributions | Taxable as “Income from Other Sources” | Section 56(2)(xii) |
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Conclusion
India’s journey with REITs began with regulatory approvals in 2014 and the listing of the country’s first REIT in 2019. This development boosted the retail participation in the real estate market. As REITs continue to gain traction, they are poised to bring more credibility and transparency.
