Why Investors Are Shifting Focus to REITs and AIFs Beyond Residential Real Estate
Indian investors are diversifying their portfolios by exploring commercial properties, REITs, and AIFs, seeking liquidity, income, and growth opportunities.
ReitsAifsCommercial PropertyReal EstateInvestmentReal Estate NewsOct 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?
REITs, or Real Estate Investment Trusts, are investment vehicles that pool money from multiple investors to buy and manage income-generating real estate properties. They distribute periodic rental payments to investors and trade on stock exchanges, providing liquidity and stable cash flows.
Why are commercial properties becoming popular among investors?
Commercial properties are attractive due to their potential for high rental yields and the growing demand from IT firms, multinationals, and start-ups. The office market in major cities like Bengaluru, Delhi-NCR, and Pune is particularly strong, with significant net absorption and low vacancy rates.
What are the benefits of investing in AIFs?
AIFs, or Alternative Investment Funds, offer access to both debt and equity real estate plays. They target high returns, ranging from 14-16 percent for debt AIFs and up to 20 percent for equity AIFs. AIFs also provide diversification and professional management, reducing the risks associated with direct ownership.
What are the risks associated with AIFs?
The risks associated with AIFs include the creditworthiness of real estate groups and the uncertainty of project exits. If projects or IPOs fail to materialize on time, investors may face delayed returns or losses.
How can investors balance their portfolio with REITs and AIFs?
Investors can balance their portfolio by combining REITs and AIFs to achieve a mix of safety, income, and growth. REITs provide income and liquidity, while AIFs offer growth potential. This diversified approach helps reduce the operating hassles of direct ownership and provides a balanced investment strategy.
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