Answer

HNI wealth · REIT

REIT vs direct property: the real comparison

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  1. Facts

    Direct property: Rental yield net of maintenance: 2-3%. LTCG on sale: 12.5% (no indexation from July 2024). Illiquid. Requires maintenance, tenant management. TDS compliance for landlord.

  2. Provisions and law

    • IT Act, Sec 22-27 (house property income) vs Sec 115UA (REIT)

  3. Analysis

    REIT: Distribution yield: 6-8%. Liquid (T+2). Professional management. Commercial real estate exposure. Tax on interest component at slab rate (higher than property's HP income treatment for some). The hidden insight: For a 30% slab investor, REIT yield on interest component = 70% of 7% = 4.9% post-tax. Direct residential rental = 3% gross, 2.4% net after maintenance. REIT wins on yield. Direct property wins on capital appreciation potential in specific micro-markets.

  4. Conclusion

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