REIT vs physical real estate: how owning units compares with owning property
A REIT lets you own units in a SEBI-registered trust that holds rent-earning buildings, bought on the stock exchange one unit at a time. Physical real estate means owning a flat or plot yourself. They differ in the money needed, how fast you can sell, costs, control and tax.
In this guide
Key takeaways
- REIT units trade on the exchange one at a time. A flat needs a down payment of at least 10%, 20% or 25% of the price, plus stamp duty and registration.
- A REIT must pay out at least 90% of its distributable cash, but the amount is not fixed. A flat earns rent only while it is let.
- A long-term gain on REIT units sold on the exchange is taxed at 12.5% above a ₹1,25,000 yearly allowance shared with shares and equity funds. A flat bought on or after 23 July 2024 pays 12.5% on the whole long-term gain.
- A flat gives you control and sells whole; REIT unit holders get income but no say in running the buildings.
- Your amount, time horizon, appetite for managing tenants and other holdings decide which fits you.
What is the difference between a REIT and buying property?
With a REIT you buy units of a SEBI-registered trust that owns rent-earning buildings. With physical property you own a flat, shop or plot yourself. The two differ in the money needed, how fast you can sell, what you pay, how much control you get and how a gain is taxed.
A REIT (Real Estate Investment Trust) pools money from many investors and uses it to buy and run property. You hold units of the trust, and a unit is one part of the trust. You receive a share of the income, but you do not manage the buildings. Under SEBI's rules, at least 80% of a REIT's assets must sit in finished properties that earn rent or other income. At least 90% of its distributable cash must go out to unit holders. Our REIT explainer covers how they work.
| REIT units | A flat you own | |
|---|---|---|
| What you own | Units of a trust that holds buildings | The flat itself |
| Money to start | One unit on the exchange; ₹10,000 to ₹15,000 in a public issue | A down payment plus stamp duty and registration |
| Selling | On the exchange on any trading day, if a buyer is there | Needs a buyer, paperwork and registration; sold whole |
| Income | At least 90% of distributable cash paid out, not fixed | Rent, only while it is let |
| Costs | Brokerage and 0.1% securities transaction tax (STT) on delivery trades | Stamp duty, registration, maintenance, property tax |
| Control | None over day-to-day running | Yours to use, let or change |
| Tax on a long-term gain | 12.5% on the part above ₹1,25,000 a year | 12.5% on the whole gain, for a flat bought on or after 23 July 2024 |
How much money do you need for each?
REIT units trade one at a time on the exchange, and a public issue asks ₹10,000 to ₹15,000 as the minimum. A flat needs a down payment of at least 10%, 20% or 25% of the price, depending on the loan size, plus stamp duty and registration on top.
Banks cap how much of the price they will lend, which is called the loan-to-value ratio. Under the RBI's rules as of July 2026, a bank may lend up to 90% on a loan up to ₹30 lakh. It may lend up to 80% above ₹30 lakh and up to ₹75 lakh, and up to 75% above ₹75 lakh. The rest is your down payment, the part of the price you pay from your own pocket.
The bank's loan does not include stamp duty and registration for a home costing over ₹10 lakh, so you pay them on top. Stamp duty and registration charges are set by each state and differ from state to state; check your state's registration department for the current rate. Our guide to stamp duty, registration and other charges explains them.
If the price is ₹50 lakh or more, you as buyer deduct 1% TDS and pay it to the government. TDS is tax deducted at source, before the money reaches the seller. Koshex also offers home loans. You can try the numbers in the home loan calculator.
How quickly can you sell each one?
REIT units can be sold on the exchange on any trading day if a buyer is there at your price; a flat needs a buyer, paperwork and registration, and cannot be sold in part.
To trade units you need a demat account, an account that keeps securities in electronic form, and a trading account with a SEBI-registered stockbroker. The trust itself buys units back only through a buy-back or when it delists. Prices are set by trading, so they can fall as well as rise, and a quick sale at a good price is never promised.
A flat takes longer. You need a buyer, an agreement, paperwork and registration of the sale. You also cannot sell a bedroom; the flat goes whole.
What income does each one pay?
A REIT must pay out at least 90% of its distributable cash at least every six months; a flat pays rent only while it is let.
A REIT's distributions are a share of the cash its properties actually earn, so they are not fixed. With a flat, an empty month or a tenant who stops paying falls on you as the owner.
The tax differs too. Only part of a REIT payout is tax-free; interest and rent passed on to you are taxed at your slab rate, with 10% TDS. The slab rate is the rate for your income band. The REIT explainer splits out the parts. Rent from a flat is taxed under the head "income from house property". The tax law takes the higher of the expected rent and the rent actually received, subtracts municipal taxes you actually paid, and then allows 30% of that amount plus your loan interest as deductions.
What does each cost to buy, hold and sell?
REIT units cost brokerage and 0.1% STT each way on delivery trades; a flat costs stamp duty and registration on purchase, then maintenance and property tax while you own it, and brokerage on sale.
STT is securities transaction tax, charged on both the buy and the sell side. A delivery trade puts the units in your demat account.
With a flat, the municipal property tax and maintenance keep coming for as long as you own it. You may also pay brokerage when you sell.
How is each one taxed?
A long-term gain on REIT units sold on the exchange gets a yearly allowance of ₹1,25,000 and is taxed at 12.5% above it. This gain is a capital gain, the profit when you sell for more than you paid. Units are long-term after 12 months. A long-term gain on a flat bought on or after 23 July 2024 is taxed at 12.5% on the whole gain, with no allowance. A flat is long-term once held more than 24 months.
Take Meenakshi, a resident in Coimbatore, with a long-term gain of ₹1,72,000 in tax year 2026-27, before any surcharge. Here is the tax if that gain comes from each one.
- REIT units sold on the exchange after more than 12 months, with STT paid and no other long-term gains that year on shares, equity funds or units of other business trusts: 12.5% on ₹47,000, the part above ₹1,25,000, is ₹5,875. Add 4% cess, an extra charge on the tax, and the bill is ₹6,110.
- A flat bought on or after 23 July 2024 and sold after more than 24 months, with no reinvestment relief: 12.5% on the whole ₹1,72,000 is ₹21,500. With cess, ₹22,360.
The gap comes from the ₹1,25,000 allowance, which applies to units of a business trust such as a REIT. It is shared with any gains from shares, equity funds and other business trust units in the same year, so another gain would use some of it. It does not apply to property.
Some other rules change the picture:
- Short term. REIT units sold on the exchange after 12 months or less are taxed at 20%. A flat held 24 months or less is taxed at your slab rate.
- Bought before 23 July 2024. A resident who sells a house or land bought before 23 July 2024, after holding it more than 24 months, pays the lower of two tax calculations, one of which allows for inflation.
- Buying another house. Buying another house within the time limits in section 82 of the Income-tax Act, 2025 (the old Section 54) can remove the tax on a house gain; real estate vs equity investment sets out the limits.
- Selling for less than the stamp-duty value. If the gap is more than 10%, the gain is worked out on the stamp-duty value.
How much control do you get, and how concentrated is your money?
A flat is yours to live in, let, change or sell. REIT unit holders receive the income but have no day-to-day say in how the properties are run.
Concentration means how much of your money rides on one thing. With one flat, the money rides on a single building. A REIT holds the properties it owns, and you hold a slice of the trust.
The factors that matter are how much money you have, how soon you may need it back, whether you want to deal with tenants and repairs, and what else you already hold. These weigh differently for each person.
Mutual funds may hold REIT units within SEBI's limits, and SEBI now counts REITs as equity-related for funds. See the mutual funds page. You can start a SIP or one-time investment from ₹100 in the Koshex app.
For more on property: Is buying a house really an investment? works through renting against buying.