Listed REITs deliver up to 29% returns in 1-yr versus realty stocks’ 35% fall. Will equity status add to the mojo?

REITs, or Real Estate Investment Trusts, recently made news after receiving equity status from capital markets regulator Sebi. Beyond the headlines, listed REITs have quietly delivered strong performance, posting returns of up to 29% over the past year, even as realty stocks slumped as much as 37%. Experts say their ability to generate stable income, coupled with the enhanced status, now gives the segment fresh momentum.

REITs are companies that own, operate, or finance income-generating real estate such as office buildings, shopping centers, apartments, hotels, and warehouses.

They allow individuals to invest in large-scale real estate projects without taking on direct ownership. Much like mutual funds, REITs pool money from investors and distribute the bulk of their taxable income to shareholders in the form of dividends.

Currently, there are four listed REITs in India. Mindspace Business Parks REIT has been the top performer, delivering 29% returns over the past year, followed by Brookfield India Real Estate Trust with 17%. Nexus Select Trust and Embassy Office Parks REIT have returned 12% and 4.2%, respectively.

In sharp contrast, realty stocks have struggled — with the Nifty Realty index slipping 20% in the past year. Godrej Properties led the decline with a 37% drop, while Brigade Enterprises and Sobha fell between 20% and 31%. Other names including Prestige Estates, Lodha Developers, Oberoi Realty, The Phoenix Mills, and Anant Raj also lost up to 16%.

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Raymond Realty has not been included in the comparison, as it was demerged from Raymond in May.
“Realty stocks have fallen as developers remain exposed to execution risks, cyclicality in demand, regulatory hurdles, and higher leverage, which make their earnings volatile. In a volatile market, investors prefer visibility of cash flows, which is why REITs have outperformed while pure-play developer stocks remain under pressure,” said Khushi Mistry, Research Analyst at Bonanza, summing up REITs’ outperformance over realty stocks.

Technically, REITs are trading above key moving averages, with the momentum indicator RSI also holding in bullish zones, Drumil Vithlani, Technical Research Analyst at Bonanza, said. In contrast, the realty index remains below EMA resistance, with RSI/ADX confirming lack of momentum, he added.

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Equity status to REITs

Sebi’s nod for equity reclassification to REITs came on September 12. The move paves the way for greater participation from mutual funds. The reclassification has been given in line with global best practices, considering the characteristics of REITs, which are more aligned with equity and relatively more liquid.

“Granting equity status to REITs is a game-changer. It improves their inclusion in mutual fund portfolios, benchmark indices, and passive investment flows. Liquidity in REIT units is likely to improve, valuations should become more comparable to equities, and retail participation may deepen. Overall, it helps institutionalize the asset class and could lead to greater capital formation in the realty sector,” Mistry said.

Read More | Sebi board meeting: REITs get equity status, move set to boost mutual fund investments

REITs vs realty stocks

Mistry recommends REITs for investors seeking predictable income with relatively lower volatility. “They combine the features of fixed income (through regular distributions) and equity (capital appreciation),” she said, while cautioning about the risks associated with realty stocks.

Real estate stocks can offer outsized returns in cyclical upturns but require high risk appetite and timing skills, the Bonanza analyst added.

Out of the four, she picks Embassy Office, Mindspace, and Brookfield India while leaving out Nexus. “They offer high-quality office portfolios with strong occupancy and steady rental escalations. Embassy remains the market leader with scale advantage, Mindspace has strong tenants in IT/ITES hubs, and Brookfield provides diversification with a global sponsor,” Mistry said.

On the broader realty outlook, Mistry remains positive, saying the sector is entering a more mature phase after multiple cycles of leverage, demand-supply imbalances, and regulatory tightening. Residential demand has revived in the past 2–3 years due to affordability, urbanisation, and consolidation in favour of stronger developers, she said.

REITs have been gaining popularity as they offer stable income, and investors can allocate a portion of their investable funds to them, Kranthi Bathini, Director-Equity Strategy at WealthMills Securities, said. Realty stocks, meanwhile, are more suitable for aggressive investors as they carry execution risks among other challenges. He suggests buying Brookfield, Mindspace, and Nexus for the long term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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