Despite real estate being a time-tested wealth builder and REITs offering liquidity, diversification, and professional management, Berkshire Hathaway has rarely invested in them. Notable exceptions include minor positions in STORE Capital and Seritage Growth Properties. But compared to Berkshire’s deep bets on firms like Apple, Coca-Cola, and American Express, the REIT exposure is negligible.
Why? According to Buffett and his longtime partner Charlie Munger, the reasons are straightforward.One key reason is the lack of a competitive edge. Buffett and his longtime partner Charlie Munger had always focused their investments in areas where they believed they have an advantage. In the highly competitive and efficient real estate market, Buffett argues that there’s little opportunity to find mispriced assets. As Munger once said, “We don’t have any competitive advantage over experienced real estate investors in the field.”Then there’s the tax angle. Berkshire Hathaway, structured as a taxable C-corporation, faces an extra layer of corporate tax on any income it earns from REITs or real estate investments. This wipes out much of the tax efficiency that makes REITs attractive to individual investors. As Munger once explained, this structure makes real estate a “lousy investment” for them.
Another key reason is returns. Buffett seeks businesses that can generate high unleveraged returns on invested capital and reinvest those profits at similar rates over time. Real estate rarely meets this threshold. Given the extensive use of leverage and the popularity of real estate as a perceived safe asset class, cap rates — essentially the unleveraged return — tend to hover in the low-to-mid single digits. For Berkshire’s long-term compounding model, that’s not compelling enough.But what doesn’t work for Berkshire Hathaway might still work for you.In India, REITs are gaining traction as an accessible, tax-efficient, and regulation-driven alternative to physical real estate ownership. Thanks to their pass-through structure, income generated by Indian REITs, such as rent or dividends from Special Purpose Vehicles (SPVs), is taxed only at the investor level, not at the REIT level. This avoids the problem of double taxation and boosts effective returns.Dividend payouts from REITs are typically tax-free in the hands of the investor, provided the underlying SPVs have already paid corporate tax. That makes REIT income one of the cleaner, more efficient sources of cash flow for individual investors, particularly those looking for passive income.
On capital gains, REIT units held for more than one year qualify as long-term capital assets and are taxed at just 10% on gains above Rs 1 lakh, much lower than the rates typically applied to physical property sales or other equity-like investments. Short-term capital gains (on units sold within one year) are taxed at 15%.
Moreover, REITs listed in India are required by the Securities and Exchange Board of India (SEBI) to distribute 90% of their net distributable income, ensuring steady income streams for investors. They also offer better liquidity and transparency than physical real estate—REIT units trade on stock exchanges just like shares, allowing investors to enter and exit positions with ease.
GST, often a complicating factor in real estate investments, does not directly affect the rental income or the returns distributed to REIT investors. And while Tax Deducted at Source (TDS) does apply to some components of REIT income, the overall structure remains efficient and investor-friendly.
So the bottom line is that Warren Buffett’s reasons for avoiding REITs stem from Berkshire Hathaway’s scale, tax structure, and investment philosophy. But for Indian investors, particularly those seeking steady income, tax efficiency, and a liquid alternative to traditional real estate, REITs present a compelling case. With favourable taxation, SEBI-backed transparency, and growing institutional interest, REITs could be a smart addition to your portfolio, even if they’re not part of Buffett’s.
Also read | Warren Buffett’s biggest investment isn’t Apple, BofA or Coca-Cola — it’s a stock hidden in plain sight
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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