Fractional Real Estate vs REITs: Which is better for Indian investors in 2025?

Most Indians know mutual funds, FDs, and gold. What’s lacking for us is information on real estate. The options are expanding, and fast. Two buzzwords we keep hearing (being in the industry ourselves) are Fractional Real Estate (Fractional RE) Real Estate Investment Trusts (REITs) Both instruments will let you access high-value properties without needing crores, but they’re not the same. Let’s break it down. What are REITs? A REIT is like a mutual fund for real estate, where you (the investor) buy units (like shares) in a listed REIT on the stock exchange. The REIT pools investor money to buy and manage properties (malls, offices, warehouses) The income generated from rent is distributed as dividends.  REITS are: Regulated by SEBI Listed on exchanges (easy to buy/sell) Known for smaller starting investment sizes, i.e. as low as ₹10,000. What are Fractional Real Estates? Fractional Real Estate lets you directly own a share of a specific property via an SPV (Special Purpose Vehicle). You pool funds with other investors to buy a commercial property, and earn rental income proportionate to your share, and when the property is sold, you share in the capital gains. Fractional REs are: Legally owned by SPV holders, AKA, the investors Managed through platforms like PropFTX that handle vetting, tenants, and compliance. Known for minimum investment sizes of ₹10-25 lakhs (varies by platform) What happens when a Fractional RE/REIT property is sold? With Fractional Real Estate, the property is owned by an SPV (Special Purpose Vehicle). If the SPV shareholders agree to sell the property, it’s sold like any other asset. The sale proceeds flow back to the SPV and are distributed to investors according to their shareholding. You directly benefit from capital appreciation in addition to the rent earned during the holding period. With REITs, it’s different. You don’t own the property: the trust does. If the REIT sells a property, you don’t get a direct slice of the sale. Instead, the REIT manager decides whether to reinvest the money into new assets or distribute part of it as dividends. Your upside is mostly tied to the unit price movement on the stock exchange, not the actual property’s appreciation. What gives higher returns, Fractional RE or REITs? When it comes to Fractional RE, residential properties typically deliver 3–4% rental yields, while Grade-A commercial spaces can go as high as 7–9%. On top of this, appreciation has been strong: housing prices in urban India have risen nearly 79% in the past five years (12–13% annually). Put together, this means a well-chosen property can generate a total IRR of 7–12% or more, depending on location, tenant quality, and holding period. Remember, these returns combine steady rent plus long-term property value growth. REITs in India usually provide 6–8% annual dividend yield, distributed from the rental income of their pooled portfolio. While REIT unit prices may fluctuate on the stock exchange, investors don’t directly benefit from property appreciation in the same way fractional owners do. The upside is stability, regulation, and high liquidity; you can buy or sell units quickly. Should I invest in REITs or Fractional REs? The instrument you choose to invest in depends on your primary goals: Choose REITs if you’re a retail investor starting small, want liquidity, and prefer modest but predictable income. Choose Fractional RE if you’re ready to commit ₹10–25 lakh, want direct ownership exposure, and are aiming for long-term rental + appreciation gains Smart investors mix both. REITs give you flexibility, while Fractional RE delivers higher upside. The Direct Takeaway: Both Fractioanl REs and REITs have their benefits. REITs offer quicker entry and exit, but with capped growth and lower yields. Fractional Real Estate offers higher return potential and the control of ownership with slower exits. If you are just starting, we recommend a strategy that uses both. Treat REITs as a short to medium-term investment and guide your returns directly into your Fractional RE portfolio for long-term growth.