Exploring New Horizons: Why Investors Are Turning to REITs and AIFs
Indian investors are diversifying their portfolios beyond residential real estate, exploring commercial properties, REITs, and AIFs for liquidity, income, and growth. This shift is driven by the need for new investment avenues and reduced dependence on traditional assets.
ReitsAifsCommercial PropertyReal EstateInvestmentReal EstateOct 20, 2025
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.
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.
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.
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.
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.
Frequently Asked Questions
What are REITs and how do they work?
Real Estate Investment Trusts (REITs) are investment vehicles that pool money from multiple investors to invest in income-generating real estate assets. These assets include Grade A offices, malls, and warehouses. REITs distribute periodic rental payments to investors and are traded on stock exchanges, providing liquidity.
What are the benefits of investing in REITs?
REITs offer several benefits, including liquidity, stable cash flows, and the ability to invest in high-quality real estate without the need for direct ownership. They also provide diversification and professional management.
What are AIFs and how do they differ from REITs?
Alternative Investment Funds (AIFs) are investment vehicles that pool funds to invest in a variety of assets, including real estate. AIFs can target both debt and equity plays, offering higher potential returns but also higher risks. Unlike REITs, AIFs are not traded on stock exchanges and may have more complex exit strategies.
What are the risks associated with AIFs?
The risks associated with AIFs include credit risk, market risk, and the uncertainty of exit strategies. The creditworthiness of real estate groups is critical, and the success of projects or IPOs can significantly impact returns.
How can investors balance their portfolio with REITs and AIFs?
Investors can balance their portfolio by including a mix of REITs and AIFs to achieve a balance between safety, income, and growth. REITs provide liquidity and stable cash flows, while AIFs offer the potential for higher returns. This diversified approach can help mitigate risks and maximize returns.
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