NRI Real Estate: Physical Rental Property vs REITs vs Commercial, A Clear-Eyed Yield and Hassle Comparison

A reader in Toronto bought a Rs 1.8 crore three-bedroom flat in Bengaluru in 2021, partly as an investment and partly as a someday-home. Five years on, it rents for Rs 48,000 a month. That is Rs 5,76,000 a year, a gross yield of 3.2%. After society maintenance, property tax, two months of vacancy between tenants, a broker's fee to find the new one, and the 31.2% TDS his tenant is legally required to deduct and which he then has to reconcile at filing, his actual cash-in-pocket return is under 2%. Meanwhile his cousin put the same Rs 1.8 crore into a basket of listed Indian REITs, collects roughly Rs 11 lakh a year in distributions, has never spoken to a tenant, and can sell the entire position before lunch. Both own Indian real estate. Only one of them owns the headache.

The 30-second answer: For an NRI wanting Indian real estate exposure, the three options diverge sharply on yield and hassle. Physical residential property yields 2% to 3.5% gross (often under 2% net), carries a 31.2% TDS the tenant must deduct on rent, is illiquid, needs hands-on management from abroad, and caps repatriation of sale proceeds at USD 1 million per financial year. Listed REITs yield 5.5% to 7.5%, trade on the exchange (fully liquid), need no tenant, and split distributions into interest (5% TDS), dividend (10% TDS) and tax-free return-of-capital. Commercial and pre-leased assets sit in between at 6% to 9% but demand large tickets and the same illiquidity. For pure income and a quiet life from abroad, REITs win. Buy a flat only for use, not for yield.

This guide assumes you already know the mechanics of buying property as an NRI, the USD 1 million repatriation cap, and how rental income is taxed in detail; if not, start with buying property in India as an NRI and tax on Indian rental income. What follows is the comparison those guides do not make: with real 2026 yield numbers and full after-tax arithmetic, which of these three ways to own Indian real estate actually deserves your money, and which one quietly costs you a manager's salary in lost time and yield.

The yield gap is wider than the brochures admit

Start with the number that decides everything, and be honest about it. Indian residential rental yields are low. Across the major metros in 2026 the gross figure sits in a roughly 2% to 4% band, and for the kind of flat an NRI actually buys, a newer, larger, well-located unit in a name society, the realistic range is 2% to 3.5%. In the October to December 2025 quarter Bengaluru came in near 3.9% gross and Hyderabad near 3.9%, both flattered by the mid-market segment; the premium end yields less. A high-value flat in South Mumbai or Lutyens-adjacent Delhi can yield under 3% gross, because prices have run far ahead of rents for two decades.

That word "gross" is doing a lot of work. Gross yield is annual rent divided by property value, before a single rupee of cost. From it you subtract society maintenance (often Rs 4 to Rs 8 per square foot per month, so Rs 8,000 to Rs 16,000 a month on a 2,000 sq ft flat), municipal property tax, repairs and repainting between tenants, the broker's fee of one month's rent each time you re-let, and vacancy, which for an NRI who cannot show the flat personally tends to run longer than the resident landlord's. Net of those, a 3.2% gross yield routinely becomes a 2% net yield. Then tax takes its cut.

REITs sit in a different league on yield, and here too I will give you the honest range rather than the marketing one. Indian REIT distribution yields in 2026 cluster around 5.5% to 7.5% depending on the trust and the unit price on the day you buy. The office REITs, Embassy, Mindspace and Brookfield, have recently printed trailing yields closer to 5.3% to 6.5% as unit prices recovered, while Nexus Select Trust, the listed retail REIT, and Brookfield at certain price points have historically been quoted at the higher 6.5% to 7.5% end. You should not believe a flat "8% to 9%" claim for office REITs at today's prices; that was a 2022-2023 figure when units traded lower. But even the conservative 5.5% to 6.5% you can realistically expect today is roughly double a residential flat's gross yield and nearly triple its net yield, before we even get to who has to deal with a tenant.

Commercial property, owned directly, is the middle path on yield: pre-leased office and retail assets in India run 6% to 9% gross in 2026, two to four times residential. That is the genuine yield advantage of commercial. The catch is the ticket size (a decent pre-leased Grade-A office floor or a high-street retail unit starts in crores), the concentration risk of a single tenant, and the same illiquidity and management burden as a flat, only larger.

Put the after-tax numbers side by side

Yield comparisons that stop at the gross figure are useless, because the tax treatment of rent and of REIT distributions is wildly different for an NRI. The single biggest difference is the 31.2% TDS your residential tenant is required to deduct.

Here is the rule residents almost never face. When the landlord is an NRI, the tenant must deduct tax at source under Section 195 on the rent, not the gentle 2% (5% earlier, now 2% for rent above Rs 50,000 a month) that applies when the landlord is a resident under Section 194-IB, but the full 30% plus 4% cess, an effective 31.2%, on the gross rent. The tenant must also hold a TAN and file Form 27Q. Most individual tenants have no idea this is their obligation, which creates a recurring friction: either you find a tenant willing to handle it, or you accept a lower-deduction certificate route, or the rent gets under-deducted and you carry the compliance risk. None of this exists for the resident landlord next door.

Walk through the residential flat in full. Take the Toronto reader's Rs 1.8 crore Bengaluru flat renting at Rs 48,000 a month, Rs 5,76,000 a year gross.

From that gross rent, the Income Tax Act allows a flat 30% standard deduction under Section 24(a) for repairs and upkeep (whether or not you spent it), so Rs 1,72,800 comes off, leaving Rs 4,03,200 as taxable rental income before any home-loan interest. Assume no loan for simplicity. He also actually pays society maintenance and property tax of, say, Rs 1,20,000 a year out of pocket (only municipal tax is separately deductible; maintenance is meant to be covered by the 30%, which it rarely fully is). On the Rs 4,03,200 taxable income, at a 30% slab plus cess, the tax is about Rs 1,25,800. His real cash flow is roughly Rs 5,76,000 rent, minus Rs 1,20,000 real costs, minus Rs 1,25,800 tax, about Rs 3,30,000 a year, a net-of-everything yield of 1.83% on Rs 1.8 crore. And the tenant has been deducting Rs 1,79,712 a year as 31.2% TDS, far more than the Rs 1,25,800 actually due, so a chunk of his money sits with the government until he files and claims the refund. That float, the gap between TDS and true liability, is a recurring NRI cost in time and cash.

Now the same Rs 1.8 crore in REITs. Assume a blended 6.2% distribution yield, Rs 11,16,000 a year, split the way Indian REITs typically split: roughly, say, 60% interest, 15% dividend, 25% return-of-capital (the exact mix varies by trust and year and is on your distribution statement). The interest portion of Rs 6,69,600 is taxed in your hands at slab, with TDS deducted at 5% for non-residents (treaty rates can reduce it further). The dividend portion of Rs 1,67,400 carries 10% TDS for non-residents and is taxable in your hands only if the underlying SPV opted into the Section 115BAA concessional corporate rate; otherwise it can be exempt. The return-of-capital portion of Rs 2,79,000 is not taxed on receipt at all; it reduces your cost of acquisition, and only bites years later if and when cumulative such distributions exceed what you paid for the units, and even then taxed as a capital gain, not as slab income.

Run the tax. On the interest, at a 30% slab, about Rs 2,00,880. On the taxable dividend (assume the SPV took 115BAA, so it is taxable), at 30%, about Rs 50,220. The return-of-capital, nil now. Total tax roughly Rs 2,51,000, against Rs 11,16,000 of distributions, leaving about Rs 8,65,000 net, a net yield of 4.81%. That is before you account for the fact that REITs also deliver some capital appreciation in the unit price over time, and the residential flat delivers its own appreciation, which is the genuine reason to hold the flat at all. On the income line alone, the REIT nets 4.81% against the flat's 1.83%, a difference of roughly Rs 5,35,000 a year of after-tax income on the same Rs 1.8 crore, in favour of the REIT. That gap is the price of the tenant, the repairs and the 31.2% withholding.

A lower-slab NRI changes the magnitudes but not the verdict. If your only Indian income were this rent or these distributions and you fell in the 20% band, the flat's tax drops and so does the REIT's, but the REIT's structural advantages, the return-of-capital bucket and the far lower yield base on the flat, keep it ahead. The verdict flips only on appreciation conviction, which we come to below.

The hassle the spreadsheet does not show

Yield is measurable; hassle is not, and it is exactly where the residential flat punishes the NRI hardest. From 8,000 kilometres away you cannot show the flat to a prospective tenant, supervise a leaking bathroom, chase a defaulting tenant, or attend a society meeting about the new lift. You delegate all of it, to family who resent it, or to a property manager who charges 8% to 10% of rent and whose incentive to maximise your net is weak. A vacancy you would fill in two weeks as a resident drags to two months. A Rs 40,000 repair becomes a Rs 70,000 repair because you cannot get three quotes from abroad.

REITs eliminate the entire category. There is no tenant, because the REIT's professional managers lease Grade-A office parks to multinational tenants on long leases and handle every renewal, repair and dispute. There is no caretaker to pay, no society politics, no midnight call about a burst pipe. You hold units in a demat account, the distributions land in your NRO account quarterly, and a registrar issues you a clean tax statement at year end. For an NRI, this is not a minor convenience; it is the difference between an investment you actively manage across time zones and one you genuinely forget about.

Liquidity is the other invisible gap. A flat takes months to sell, requires a buyer, a registrar, stamp duty on the buyer's side, a capital-gains computation, and, critically for you, navigating the USD 1 million per financial year repatriation cap on remitting sale proceeds out of your NRO account, plus a chartered accountant's Form 15CA and 15CB certification for the remittance. If you sell a Rs 3 crore flat, you cannot necessarily move all the money out in one year; you may need to spread the repatriation across two financial years. REIT units sell on the NSE or BSE in seconds at a known price, and the proceeds, being from a listed security bought with NRO funds, follow the same NRO repatriation framework but in far smaller, more flexible chunks you can size to stay within the cap. The illiquidity premium you supposedly earn on the flat is, for an NRI, mostly an illiquidity penalty.

Where the physical flat still wins

I am not telling you to never own Indian property. There are two clear cases where the flat beats the REIT, and they have nothing to do with yield.

The first is use. If the flat is a home you or your parents will live in, or one you plan to return to when you eventually move back, the yield comparison is irrelevant. You are buying shelter and optionality, not a 3% coupon. A REIT cannot house your mother. If that is the goal, buy the flat, accept the low yield as the cost of owning the actual asset, and read buying property in India as an NRI for doing it cleanly.

The second is capital appreciation conviction in a specific micro-market. Residential India's long-run case has always been price growth, not rent. If you genuinely believe a particular corridor, a new metro line, an emerging IT cluster, will see prices run, the flat's low yield is the entry ticket to that appreciation, and a REIT, which is diversified across mature Grade-A assets, will not give you that concentrated upside. But be honest with yourself about whether you have an edge in picking that micro-market from abroad, or whether you are simply rationalising a purchase. Most NRIs do not have the local information to time a specific locality better than the market, and the leverage and illiquidity amplify the cost of being wrong.

Commercial property occupies a narrower niche: an NRI with a large ticket (Rs 2 crore plus), an appetite for single-tenant concentration risk, and a relationship with a developer or broker who can source a genuinely pre-leased Grade-A asset with a credit-worthy tenant on a long lock-in. Done well, that 7% to 9% yield with annual escalations beats both residential and REITs on income. Done badly, you own an illiquid box with one tenant whose departure takes your yield to zero overnight. For most NRIs, the REIT is the better way to get commercial real estate exposure precisely because the REIT diversifies that single-tenant risk across dozens of buildings and hundreds of tenants.

How the three stack up

Factor	Residential flat	Listed REIT	Commercial (direct)
Gross yield 2026	2% to 3.5%	5.5% to 7.5% distribution	6% to 9%
Realistic net yield to NRI	~1.5% to 2.5%	~4.5% to 6%	~5% to 7.5%
TDS on income	31.2% on rent (Sec 195)	5% interest / 10% dividend	31.2% on rent (Sec 195)
Tenant and management	You, from abroad	None (professional managers)	You, from abroad
Liquidity	Months to sell	Seconds on exchange	Months to sell
Minimum ticket	Tens of lakhs to crores	One unit (a few hundred rupees)	Crores
Diversification	Single asset, single tenant	Dozens of buildings	Single asset, single tenant
Repatriation	USD 1M cap, 15CA/15CB, lumpy	USD 1M cap, but flexible chunks	USD 1M cap, lumpy
Main reason to choose	Use, or micro-market appreciation	Yield, liquidity, no hassle	High yield if you can source it well

Edge cases

The return-of-capital component is a deferral, not a free lunch. The portion of a REIT distribution that is return of capital is not taxed when you receive it, which makes the headline cash flow look very tax-efficient. But it reduces your cost of acquisition, so when you eventually sell, your capital gain is larger by exactly that amount. And once cumulative return-of-capital distributions exceed your original purchase price, the excess becomes taxable. Treat this bucket as tax-deferred, not tax-free, and keep your distribution statements so you can compute the adjusted cost correctly years later.

Country of residence changes the REIT dividend and interest tax. The 5% TDS on interest and 10% on dividend are domestic rates. Your DTAA may lower them, but for the major NRI hubs the picture is nuanced: India's domestic 5% interest TDS is already at or below many treaty rates, so the treaty may not help on interest. On dividends, US and UK residents claim a foreign tax credit at home for the Indian tax; UAE residents, with no personal income tax, simply bear the Indian withholding as their final cost. Run your own numbers with DTAA relief mechanics and your treaty before assuming a reduction.

A let-out flat with a home loan can show a tax loss, which a REIT cannot. If you bought the flat with an Indian home loan, the interest is deductible against rental income under Section 24(b), and a let-out property has no cap on the interest deduction (the Rs 2 lakh cap applies to self-occupied property). A highly-leveraged flat can therefore throw off a taxable loss that shelters other Indian income, a feature REITs do not offer. This narrows the after-tax gap for leveraged buyers, though it does not close it, and it comes with the obvious risk of leverage on a low-yielding asset.

Repatriating sale proceeds is lumpier for the flat. Both routes sit under the USD 1 million per financial year NRO repatriation cap, but a single flat sale can blow past that cap in one transaction, forcing you to split the remittance across financial years and file Form 15CA and 15CB each time. REIT units you can sell in tranches sized to your remaining annual headroom. If you are likely to want the money out of India promptly, the flat's lumpiness is a real constraint. See selling property in India as an NRI for the repatriation and TDS mechanics on a sale.

The closing read

The honest read is that for an NRI whose goal is real estate income and exposure, not a home to live in, the physical residential flat is the weakest of the three options on almost every axis that matters from abroad, and it is not close. It yields 2% to 3.5% gross and often under 2% net; it forces a 31.2% TDS on the tenant and a refund chase on you; it demands hands-on management you cannot provide from another continent; it is illiquid and lumpy to repatriate. REITs yield 5.5% to 7.5%, need no tenant, sell in seconds, withhold tax at 5% to 10%, and hand you a clean tax statement. The after-tax income gap on the same Rs 1.8 crore is roughly Rs 5 lakh a year in the REIT's favour, which is the dressed-up cost of being a long-distance landlord.

So for most NRIs: if you want yield and a quiet life, put your real estate allocation into a basket of two or three listed REITs through your demat account and stop there. If you want a specific home for family use or eventual return, buy that flat and accept its low yield as the price of owning the actual roof, but do not pretend it is an income investment. If you have a genuinely large ticket and the ability to source a well-tenanted pre-leased commercial asset, that is the one direct-property case with a yield edge worth the illiquidity, and even then a REIT is the safer default. The flat-for-appreciation thesis is the one to be most sceptical of in yourself: it is the rationalisation most NRIs reach for, and the one the data supports least from 8,000 kilometres away. Slot whatever you choose into your wider plan using NRI portfolio asset allocation, and remember that "real estate" can mean a REIT line in a demat account, not a key under a doormat in Bengaluru.

Related guides

• Buying property in India as an NRI
• REITs and InvITs for NRIs
• Selling property in India as an NRI
• Tax on Indian rental income for NRIs
• NRI portfolio asset allocation
• All Investments guides
• All Taxation guides
• NRI banking guides

This guide is educational and general in nature. It is not individual investment or tax advice. Rental yields, REIT distribution yields and unit prices move with the market and the figures here reflect early 2026; tax treatment of rent, REIT components and repatriation depends on your residency, your treaty and the underlying SPV's elections, and several rules can change. Confirm your specific position with a qualified chartered accountant or SEBI-registered adviser before you buy or sell.