Buying property in India has been a natural choice for NRIs for decades. A home back home is rarely viewed as merely an investment. It secured the family, gave them a place to stay after returning to India, an asset for the next generation, but most importantly, an emotional connect with the country.

That relationship is changing now. NRIs are not leaving Indian real estate, not by any stretch of imagination. As a matter of fact, their influence in the housing market has grown significantly. The change is in how they look at real estate as an investment.

An NRI today has more options. In addition to directly purchasing a home or business, investors can invest in listed Real Estate Investment Trusts (REITs). Small and Medium REITs, or SM REITs, are also creating another path into income-producing commercial real estate.

This wider choice is important as NRIs are already a big part of India’s housing demand. Estimated at 18-20% in 2025, their share was 7-10% about a decade ago.

In some of the prime luxury projects it can be as high as 25%. The Gulf is the largest source for NRI real estate investment, with about 60% of inflows coming from the region.

For an NRI investor, this means ‘Should I buy property in India?’ is no longer the only question. It also involves determining which type of real estate investment best suits the investor’s objectives.

Direct property still has a strong case

REITs and direct property should not be viewed as merely rival products. They serve different needs. If you are an NRI and anticipate returning to India someday, buying a residential property may be a wise decision. The same is true if you’re purchasing a home for parents, for retirement, or as a long-term family asset. In such cases the property has both a personal use and an investment value.

Direct ownership gives the investor control. The owner can choose to live in the property, rent it, renovate it, finance it, or save it for the next generation.

There is also the chance to gain from strong price growth in a specific location. A well-chosen location can experience substantial property appreciation if demand for infrastructure, jobs, connectivity and housing rises together. Owning the property directly may therefore be preferred by an investor who is aware of that market and is prepared to maintain their investment over time.

Financing is another advantage. NRIs can apply for home loans, meaning they don’t always have to pay the entire property value from their own pockets. If property prices increase, borrowing can increase the return on the investor’s own capital. But it also carries risk if prices don’t rise as expected.

The real cost of owning property

Investments in real estate are frequently evaluated based on potential price increases. Little attention is paid to what it costs to buy and run it. The gross residential rental yields in big cities in India are usually between 2.5% to 4.5%. But that’s not necessarily what the owner ends up with. Vacancy, maintenance charges, broking, property taxes, repairs and other expenses may eat into the actual rental income.

Buying a property also means paying stamp duty, registration, broking and legal costs. It might take months to sell it, particularly if conditions in the market are not good.

Managing property from a different country is an added challenge for an NRI. Either you have to get involved personally or get the help of a professional property manager to find and replace tenants, handle repairs and deal with paperwork – which costs time, effort and money.

This becomes all the more important when an NRI is buying a second or third home just for investment. If the property is not for personal use, then it must be justified on investment grounds. An investor should consider the expected returns, how much money an investor is putting in, rental income, how easy it is to sell and how much work it takes to manage.

REITs offer a different way to invest in real estate

REITs allow investors to invest in Indian real estate without having to buy and manage a single property. As of early 2026, the listed REIT market in India had grown to nearly ₹2.50 lakh crore, with over 3.8 lakh unitholders. These REITs provide investors an opportunity to invest in professionally managed commercial and retail properties that, due to the large capital outlay, would be out of reach for many individuals to own directly.

One of the major benefits to an NRI is risk spreading. A property directly owned can tie up a lot of money in one building, one location and sometimes one tenant. A REIT can diversify that exposure across multiple properties and occupiers.

Traditional listed REITs must distribute at least 90% of net distributable cash flows. Standard listed REIT yields have historically been around 7%, although actual distributions and market prices will vary with business and market conditions.

REITs also make it easier to get into and out of a real estate investment. The units listed can be traded on the market. Finding a buyer, settling on a price, and finishing the paperwork are all necessary steps in the much longer process of selling a physical property.

SM REITs are widening further choice. Within SEBI’s framework, these schemes are for assets between ₹50 crore and ₹500 crore. They have a minimum investment criteria of Rs.10 lakh and are required to invest at least 95% of their assets in completed income-generating properties.

But there are risks with REITs as well. Market prices can be affected by interest rates, leasing activity and wider market conditions. Investors also have no direct control over the properties owned by the REIT. So the choice is not which one is better. It is about knowing what the investor wants from the investment.

Look beyond the headline yield

An NRI investor should also be careful while comparing the rental yield of a residential property with the distribution yield of a REIT. You can’t compare them directly.

The property owner has to deal with costs such as vacancy, maintenance, repairs, and broking. REITs are structured differently in terms of costs and management. If a specific location experiences a significant increase in value, direct property may offer the advantage of borrowing and stronger gains. REITs, however, allow for easier buying and selling, professional management and the ability to spread investment across several assets.

Therefore, the better comparison is based on the total return after expenses, the amount of capital needed, the ease of selling the investment, the duration of holding, and the degree of risk involved.

Additionally, taxes and repatriation must be considered. While NRIs must take into account FEMA regulations, repatriation requirements, and the tax agreement between India and their country of residence, direct property and REIT income are subject to different taxes. These may differ the individual’s circumstances, so cross-border tax advice is important.

What should an NRI investor choose?

The purpose of the investment should be the beginning of the answer. If you plan to use the property yourself in future, direct residential ownership has an advantage over a financial investment.

If the goal is to profit from price increases in a specific area, direct property might also make sense for a market-savvy investor who can hold onto their investment for a long time and is at ease with a substantial sum of money in one asset.

If you want regular income, an easier exit, professional management and diversification across commercial property, listed REITs are an alternative.

SM REITs may provide another path for investors looking for more specific exposure to operating commercial properties that generate revenue.

But for many NRIs, it need not be one or the other. A family’s long-term housing needs could be met by a residential property and REITs could be used for a separate investment or income purpose. – editor@nrifocus.com

– Avneesh Sood is Director of Eros Group.