REITs promise real estate exposure without the hassle. In practice, they deliver the worst of both worlds: equity-like volatility with bond-like returns, minus a 42.23% tax haircut.
Personal Note
In 2021, I watched a family office deploy ₹50 crores into Embassy Office Parks REIT at ₹368. Today it trades at ₹330, while the BSE Realty Index is up 317%. They bought yield; the sponsor sold appreciation.
Stoic Lens
“Wealth is the slave of a wise man, the master of a fool.” — Seneca. The wise build assets and sell income streams. Fools buy income streams after others have captured the growth.
Practical Drill-down
The math exposes the trap. Since 2019, the Nifty REITs & InvITs Index delivered 3% CAGR. Actual breakdown:
- Capital appreciation: <1% annually
- Dividend yield: ~2% (post-tax: 1.15%)
- Meanwhile, direct real estate in Bangalore appreciated 12-15% CAGR
REITs are exit vehicles, not entry strategies. The sponsor builds at ₹4,000/sqft, leases at 9% yield, then sells to the REIT at ₹8,000/sqft. You buy at full price with zero development arbitrage left.
The lifecycle:
- Developer acquires land (10x potential)
- Builds and leases (2-3x realized)
- Packages into REIT (your entry point)
- You hold depreciating assets with capped rental growth
Exception: Nexus Select Trust — but that’s retail arbitrage masquerading as a REIT.
Reflection
Ask yourself: Are you buying optionality or terminal value? If you’re chasing 6% yield in a 12% inflation economy, what are you really protecting?
TL;DR
- REITs: 3% returns vs 317% for real estate developers
- 42.23% tax on dividends destroys net yield
- Buy square feet early, not packaged yield late
- If you want income: high-grade NCDs at 9% beat REITs
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