REITs vs Real Estate for NRIs - The Easier Way to Invest in Property

A friend in Dubai called me last month with a familiar question. He had saved AED 200,000 and wanted exposure to Indian real estate.

But he was stuck. Buy a flat in Bangalore? Deal with tenants from 3,000 km away? Or try these "REITs" his colleague mentioned?

This is a conversation we have almost daily at Belong. Many NRIs in our WhatsApp community share the same confusion. They want real estate's stability but not its headaches.

The good news? You now have options. India's REIT market has matured significantly since 2019. And the choice between REITs and direct property is clearer than ever.

This guide breaks down everything: returns, taxes, liquidity, and the real hassle factor of each option. By the end, you'll know exactly which path fits your situation.

What Exactly Are REITs?

A Real Estate Investment Trust (REIT) is a company that owns and manages income-producing properties. Think of it like a mutual fund, but for real estate. You buy units on the stock exchange. The REIT collects rent from its properties. And you receive your share as dividends.

REITs in India must distribute at least 90% of their net income to shareholders. This is mandated by SEBI regulations. So you get regular payouts, typically every quarter.

The properties REITs own are usually premium commercial spaces. We're talking Grade-A office parks in Bangalore, Mumbai, Hyderabad. Buildings leased to companies like Microsoft, Google, JP Morgan.

India currently has five listed REITs managing properties worth Rs 2.4 lakh crore combined. They've distributed over Rs 26,500 crore to investors since 2019, according to Embassy REIT's investor resources.

👉 Tip: REITs give you exposure to premium commercial properties that would cost hundreds of crores to buy directly.

The Five REITs Available to NRIs Today

Embassy Office Parks was India's first REIT, launched in April 2019. It's backed by Embassy Group and Blackstone. The portfolio includes office parks across Bangalore, Mumbai, Pune, NCR, and Chennai. Major tenants include Fortune 500 companies.

Mindspace Business Parks focuses on premium offices in Mumbai, Hyderabad, Pune, and Chennai. It holds India's highest ESG rating among REITs.

Nexus Select Trust is different. It's India's only pure retail REIT, owning 19 shopping malls across 15 cities. If you want exposure to India's growing consumer market, this is your option.

How Direct Real Estate Works for NRIs

Under FEMA regulations, NRIs can buy residential and commercial properties in India without RBI approval. The process involves:

Selecting a property and verifying clear title. Paying through NRE, NRO, or FCNR accounts. Registering the property with local authorities. Managing the property or hiring someone to do it.

The restriction? NRIs cannot buy agricultural land, farmhouses, or plantation properties. These can only be inherited.

For many NRIs, direct property feels tangible. You can visit it. Your family can use it. It's "real" in a way that REIT units aren't.

But this tangibility comes with significant costs and complications.

The Real Costs of Buying Property in India

When my team at Belong analyzed property investments, we found that many NRIs underestimate the true cost. Here's what a Rs 1 crore property in Mumbai actually costs:

Stamp duty rates vary by state. Maharashtra charges 5-7%. Karnataka charges 5% for properties above Rs 45 lakh. Delhi charges 6% for men, 4% for women.

These are upfront costs. You haven't accounted for maintenance, property tax, society charges, and potential vacancy periods.

👉 Tip: Always budget 8-10% above the property price for transaction costs when buying real estate in India.

The Minimum Investment Gap

This is where REITs shine for smaller portfolios.

To buy a decent flat in a metro city, you need Rs 50 lakh to Rs 1 crore minimum. That's before the 8-10% transaction costs.

REITs? You can start with Rs 10,000-15,000. That's the price of a few units on the stock exchange.

The minimum lot size for REITs was reduced from Rs 2 lakh to Rs 50,000 in 2021. And since they trade on exchanges, you can buy even smaller amounts.

For an NRI testing the waters or diversifying across multiple investments, this accessibility matters.

Rental Yields vs REIT Dividend Yields

Let's talk returns. This is where many NRIs get surprised.

Global Property Guide data shows average residential rental yields in India at 5.09% gross in Q4 2025. But city-wise, the picture varies:

These are gross yields. After maintenance, vacancy, property tax, and society charges, net yields drop to 2-3.5% for most residential properties.

Compare this to REITs. Embassy Office Parks offers around 5.5% dividend yield. That's net. No maintenance headaches. No vacancy risk. Professional management handles everything.

Commercial properties do better than residential. Office spaces yield 6-8%. But buying commercial property directly requires crores in capital and carries higher tenant risk.

👉 Tip: Compare net yields, not gross yields. Account for all expenses when calculating real estate returns.

Capital Appreciation: Where Property Has the Edge

Rental yield is only half the story. Capital appreciation is where direct real estate has historically outperformed.

According to Puravankara's market analysis, residential prices across top metros rose 10-24% over the past two years. Projections suggest another 6-7% growth in 2025.

Some micro-markets have done even better. Prime South Mumbai saw 9-10% annual appreciation. Delhi-NCR corridors like Dwarka Expressway delivered 10-20% annually.

REITs have shown mixed performance on capital appreciation. Embassy REIT's price CAGR since listing is around 4.82%. But total returns, including dividends, stand at approximately 11.29%.

For pure capital growth, well-located physical property often wins. But you need to pick the right location, which requires local market knowledge.

Liquidity: Can You Exit When You Need To?

Here's a scenario we've seen repeatedly. An NRI buys property in India. Years later, they need funds urgently. Selling takes 6-12 months. Finding a buyer, negotiating price, completing paperwork, getting repatriation approvals.

REITs? Log into your trading app. Sell your units. Money in your account within T+1 days.

This liquidity difference is massive. Property is inherently illiquid. You can't sell half a flat. You can't exit partially. It's all or nothing.

With REITs, you sell exactly what you need. Keep the rest invested. This flexibility matters for NRI retirement planning and emergency fund management.

The Hassle Factor for NRIs

Let me be direct. Managing property from abroad is painful.

Our conversations with NRIs reveal consistent challenges:

Finding tenants remotely. You rely on agents or relatives. Screening is difficult. Getting trustworthy tenants without being present is a gamble.

Rent collection. Chasing payments across time zones. Handling defaults. Many NRIs report months of unpaid rent before they can take action.

Maintenance coordination. A pipe bursts at 2 AM India time. Your tenant calls. You're in Dubai, trying to find a plumber remotely.

Legal compliance. Annual property tax. Society dues. Rental agreements. TDS on rent that tenants must deduct at 31.2% from the first rupee.

Vacancy periods. Between tenants, your property earns nothing but costs continue. Average vacancy in Indian metros runs 1-2 months per transition.

Professional property management services exist. NoBroker, Square Yards, and others offer NRI-specific services. But they charge 5-8% of rent annually. This further reduces your net yield.

REITs eliminate all of this. Professional teams manage 50+ million square feet of property. They handle tenants, maintenance, legal compliance. You just collect dividends.

👉 Tip: Factor in property management costs (5-8% of rent) when comparing direct real estate returns to REITs.

Tax Treatment: A Critical Comparison

Tax rules differ significantly between REITs and direct property. Understanding this can save you lakhs.

Direct Real Estate Tax for NRIs

Rental income: Taxed at slab rates. Tenants must deduct 31.2% TDS before paying rent. You can claim refund if actual liability is lower.

Capital gains on sale: If held less than 24 months, gains are short-term, taxed at slab rates. If held over 24 months, long-term gains are taxed at 12.5% without indexation.

Repatriation: Sale proceeds of up to two residential properties can be repatriated, subject to USD 1 million per year limit from NRO account.

For detailed guidance, check our NRI capital gains tax guide.

REIT Tax for NRIs

Dividend income: Generally taxed at 20% for NRIs, though this can be reduced under DTAA provisions. TDS is deducted at source.

Interest income: Taxed at slab rates. TDS at 5% for NRIs.

Capital gains on unit sale: Short-term (held less than 12 months) taxed at 15%. Long-term (held over 12 months) taxed at 12.5% on gains above Rs 1.25 lakh.

REIT taxation is simpler. The REIT handles most compliance. You receive income after TDS. File your return and claim any excess TDS refund.

Direct property requires more active tax management. Rental agreements, TDS certificates from tenants, capital gains calculations, reinvestment proofs for exemptions under Section 54.

How NRIs Can Invest in REITs

The process is straightforward if you already have an NRI trading account:

Step 1: Open an NRE or NRO Demat and trading account with a SEBI-registered broker. Most major brokers like ICICI Securities, HDFC Securities, and Zerodha offer NRI services.

Step 2: Complete KYC requirements including PAN card, passport, overseas address proof, and FEMA declarations.

Step 3: Fund your account through NRE or NRO bank account.

Step 4: Search for REIT tickers on your trading platform. Embassy is "EMBASSY", Mindspace is "MINDSPACE", etc.

Step 5: Place a buy order like you would for any stock.

The investment route is through the Portfolio Investment Scheme (PIS) for NRIs using NRE accounts.

👉 Tip: If you already invest in Indian stocks or mutual funds, you can add REITs to the same Demat account.

How NRIs Can Buy Direct Property

The property purchase process is more involved:

Step 1: Identify the property and location. For NRIs, RERA-registered projects from reputed builders offer more security.

Step 2: Complete title verification. Hire a local lawyer to check ownership history, encumbrances, and pending disputes.

Step 3: Arrange a Power of Attorney if you can't be present for registration. This must be notarized and apostilled in your country of residence.

Step 4: Make payment only through banking channels using NRE, NRO, or FCNR accounts. Cash transactions are prohibited under FEMA.

Step 5: Pay stamp duty and registration charges. Complete registration at the Sub-Registrar office.

Step 6: Arrange property management if you're renting out.

For a complete walkthrough, see our NRI property investment guide.

When Direct Real Estate Makes Sense

Despite the hassles, direct property works well in specific situations:

You're planning to return to India. If you'll use the property yourself in a few years, the hassle of managing it temporarily is worth it. You'll have a home ready when you move back. Our returning NRI financial checklist covers this scenario.

You have family in India who can manage it. A trustworthy parent, sibling, or cousin near the property changes everything. They can handle tenant issues, maintenance, and inspections.

You're buying in a high-growth micro-market. If you have local knowledge and can identify undervalued areas before they appreciate, direct property can deliver outsized returns that REITs can't match.

You want a vacation home. Properties in Goa, Kerala, or hill stations that you'll use personally have value beyond financial returns.

When REITs Are the Better Choice

REITs make more sense when:

You have a smaller investment amount. With Rs 10-50 lakh, building a diversified real estate portfolio through REITs is practical. Buying a single property with this amount limits you to secondary locations.

You value liquidity. If you might need the money within 5 years, REITs' easy exit makes planning simpler.

You don't want management hassles. If your time is valuable and dealing with tenants/maintenance sounds exhausting, REITs outsource all of that.

You want commercial real estate exposure. Buying a Grade-A office directly costs crores. REITs give you fractional ownership in premium commercial properties.

You're building a diversified portfolio. REITs can be 10-15% of your overall allocation, alongside mutual funds, fixed deposits, and other assets.

A Hybrid Approach: Why Not Both?

Many sophisticated NRIs use both. They might own one residential property for emotional connection and retirement planning. And they hold REITs for liquidity, diversification, and passive income.

The allocation depends on your situation:

There's no one right answer. Your circumstances dictate the optimal mix.

What About Fractional Real Estate?

A middle ground is emerging: fractional ownership platforms. These let you buy shares in specific properties with smaller amounts than direct ownership but more control than REITs.

However, this space is still maturing in India. SEBI's Small and Medium REIT (SM REIT) framework is expected to launch in 2026, which will regulate this segment better.

For now, we recommend sticking to SEBI-regulated listed REITs for the transparency and liquidity they offer.

Common Mistakes NRIs Make

Mistake 1: Buying property purely for emotional reasons. "My grandfather's village" or "near my childhood home" are fine reasons to buy. Just don't expect great financial returns from sentimental purchases.

Mistake 2: Not accounting for currency impact. A property that appreciates 8% annually in INR but with 4% rupee depreciation gives you only 4% in dollar terms. Our rupee vs dollar tracker helps you monitor this.

Mistake 3: Ignoring tax implications until sale time. Plan your exit strategy before buying. Understand capital gains rules, exemptions under Section 54, and repatriation limits.

Mistake 4: Over-concentrating in real estate. Whether REITs or direct property, real estate should be part of a diversified portfolio, not all of it.

Our Recommendation at Belong

At Belong, we believe in matching investments to individual situations. There's no universal "better" choice between REITs and direct property.

For most NRIs in the UAE with limited time and no family to manage property in India, REITs offer a cleaner solution. Professional management, liquidity, and reasonable yields without headaches.

For those with strong local connections, planning to return, or seeking high-growth opportunities, direct property remains valuable. Just go in with eyes open about the work involved.

And consider combining both approaches. A residential property for personal use. REITs for passive commercial exposure. GIFT City investments for tax-efficient diversification. This layered approach builds resilience.

Your Next Steps

1. Assess your situation. Are you staying abroad permanently or planning to return? Do you have family who can help manage property? How much can you invest?

2. Check your existing exposure. If you already own property in India, REITs might add diversification. If you have zero real estate exposure, either option could work.

3. Understand the tax implications. Use our NRI tax filing service to plan optimally.

4. Start small if uncertain. REITs let you test real estate investing with minimal commitment. You can always increase allocation later.

5. Join the conversation. Our WhatsApp community has NRIs discussing exactly these decisions. Real experiences from people in your situation.

Download the Belong app to explore tax-efficient investment options beyond just real estate. From GIFT City mutual funds to USD fixed deposits, we help you build a complete NRI portfolio.

Sources:

• Embassy REIT Investor Resources: https://www.embassyofficeparks.com/investors/resources/
• Global Property Guide - India Rental Yields: https://www.globalpropertyguide.com/asia/india/rental-yields
• SEBI REIT Regulations: https://www.sebi.gov.in
• RBI FEMA Guidelines: https://rbi.org.in
• Godrej Capital Stamp Duty Guide: https://www.godrejcapital.com/media-blog/knowledge-centre/stamp-duty-and-registration-charges-in-india
• Puravankara Investment Outlook 2025: https://www.puravankara.com/real-estate-blog/investment-outlook-2025-is-residential-real-estate-still-the-safest-bet