Why investors are looking beyond homes to REITs and AIFs

Direct ownership of commercial property is lucrative but challenging, with high capital and tenant management. That's why REITs have become popular.

Commercial spaces, rental yields, and new-age funds are giving investors more reasons to diversify wealth.

The shift away from just homes

For years, a home was the ultimate repository of wealth for Indian investors. But the times are changing. Commercial property, real estate investment trusts (REITs), and alternative investment funds (AIFs) are breaking into the scene. These are attractive to young professionals who desire liquidity and high-net-worth individuals who are looking at large institutional-quality projects.

Offices continue to be in demand

India's office market continues to be strong. Leasing in the top eight cities during the first half of 2025 exceeded 42 million square feet, putting the year on track to tally 90 million. Net absorption grew nearly 19 percent compared to a year ago, as vacancy eased to 15.7 percent. Bengaluru, Delhi-NCR, and Pune are driving most of this activity, with IT firms, multinationals, and start-ups leading them.

Why REITs are catching on

Direct ownership of commercial property is lucrative but challenging, with high capital and tenant management. That's why REITs have become popular. These funds pool money into Grade A offices, malls, and warehouses and distribute periodic rental payments. Units trade on stock exchanges, so they are liquid. India's listed REITs have returned over Rs 24,300 crore to date, showing their ability to provide stable cash flows.

Also read | Understanding REIT yields: What Indian investors need to know

AIFs for higher risk, higher reward

For longer bet-takers, AIFs provide access to both debt and equity real estate plays. Debt AIFs target returns of 14-16 percent, whereas equity AIFs can easily reach 20 percent. They diversify sector and location of investment, providing diversification as well as professional management. But risks exist — creditworthiness of real estate groups is critical, and exits are subject to uncertain results if projects or IPOs fail to materialise on time.

Balancing the mix

Residential property continues to be the cornerstone of long-term family riches, but currently REITs and AIFs give investors new ways to diversify and leverage. REITs offer income and liquidity, AIFs add scope for growth, and both together reduce the pesky operating hassles of direct ownership. For investors requiring balance among safety, income, and growth, a considered mix across these assets is increasingly the more sensible gamble in today's risk-filled world.