In a year where Indian equities delivered moderate returns, Real Estate Investment Trusts (REITs) rewarded investors with healthy double-digit percentage price appreciation in 2025. This strong performance was supported by falling repo rates and ever-increasing demand for premium office spaces. REITs offer investors the opportunity to invest in large-scale real estate assets while earning dividend payouts from rental earnings, gradually emerging as the preferred investment choice for portfolio diversification beyond traditional fixed-income instruments.

The year 2025 also witnessed significant tax reforms that benefited REIT investors. The Long-Term Capital Gains (LTCG) holding period was reduced from 36 months to one year, while the LTCG rate was rationalized to 12.5% on gains exceeding ₹1.25 lakh accrued from the sale of listed REIT units. These changes have encouraged both retail and institutional investors to eagerly anticipate further measures in the upcoming Union Budget 2026.

Policy Consistency to Boost Market Confidence

As India aims to become a developed economy by 2047, REITs could play a pivotal role in attracting investments into the country's real estate sector and provide developers with sustainable funding avenues for future growth. For this vision to materialize, REITs need to gain popularity among both investors and real estate developers, thereby increasing the depth and breadth of India's REIT market.

From a real estate developer's perspective, several key reforms could accelerate REIT adoption:

These reforms could allow a larger set of real estate assets like warehouses, Global Capability Centres (GCCs), and industrial parks to be included in REITs, while shaping investor confidence as India scales its REIT market.

Tax Stability and Treatment Reforms

From the institutional and retail investor perspective, India needs to finetune the taxation framework to simplify tax treatment of all components of REIT distributions. This includes dividends, capital repayments, and interest expenditure, ensuring alignment to entice long-term investors.

Key tax reform expectations include:

• Expanded tax-free dividend distributions to all REITs, irrespective of the tax regime opted for, bringing more uniformity and widening the range of REIT listings
• Capped FPI interest tax at 5% to lift post-tax yields, broaden the global investor base, and channel stable, long-horizon capital into India's listed real-asset platforms
• GST rate rationalization on input materials and services to reduce cost pressures for developers
• Fiscal policy interventions to encourage participation from long-term mutual and pension funds

Enhancing Liquidity and Market Depth

Considering that India currently has only five listed REITs, structural reforms focused on driving new listings and accelerating investor adoption are crucial. The Indian REIT market is valued at approximately ₹1.66 lakh crore, presenting significant growth potential.

With SEBI classifying REIT units as equity-related instruments from 1st January 2026, the combination of increased mutual fund participation and positive momentum from Union Budget 2026 could unlock significant growth opportunities for the entire real estate ecosystem. Investor education initiatives highlighting how REITs can act as stable income-generating assets even in high inflation environments could bolster retail participation and deepen market liquidity.

India's real estate investment sector is positioned for a significant structural transformation in 2026, as REITs and fractional ownership platforms emerge as primary vehicles for democratising investor participation in commercial real estate markets.

SM REITs Framework Unlocks Investment Opportunities

The introduction of Small and Medium REITs (SM REITs) represents a pivotal regulatory development that will reshape real estate investment accessibility. According to Deepak Kapoor, Director at Gulshan Group, this framework is designed to unlock numerous mid-sized income-generating commercial assets for public listing.

These investment instruments are specifically structured to provide retail investors with opportunities to participate in high-value commercial real estate through smaller capital outlays, effectively broadening the investor base for real estate assets.

Physical Real Estate Market Demonstrates Resilience

Despite stock market volatility, India's physical real estate market exhibited remarkable strength throughout 2025. The sector was driven by fundamental factors including genuine end-user demand, rising disposable incomes, and unprecedented infrastructure development that fuelled robust housing sales.

The luxury and uber luxury segments particularly dominated sales value across major metropolitan areas. Simultaneously, the commercial office segment achieved record absorption levels, reflecting strong economic confidence and underlying market health that confirms real estate's position as a core asset class.

Institutional Capital and Investment Priorities

The outlook for 2026 indicates stronger institutional and foreign capital inflows into Indian real estate markets. Investment priorities are expected to focus on stable, income-generating assets with clear growth narratives.

Global Capability Centres (GCCs) have emerged as a primary driver for commercial space absorption, attracted by India's skilled talent pool in STEM fields, supportive government policies, and world-class infrastructure in Special Economic Zones and technology parks.

Investment Strategy for ₹1-2 Crore Corpus

For investors planning to deploy ₹1-2 crores in 2026, a diversified approach is recommended. The strategy includes allocating portions to fractional ownership or SM REITs focused on Grade-A offices in technology hubs, while considering direct investment in premium apartments within emerging, infrastructure-linked micro-markets.

Market Outlook and Rental Yield Trends

Rental yields are anticipated to remain stable or experience moderate growth in prime commercial segments, particularly offices and warehousing, supported by strong occupier demand. In the residential sector, rental yields may see slight improvement as urbanisation and job growth fuel rental demand, especially in high-demand luxury micro-markets.

The NCR region is experiencing transformative, infrastructure-led growth along corridors such as the Noida Expressway and Noida-Greater Noida Expressway, which are unlocking premium residential and commercial micro-markets with robust demand for luxury housing segments.