When people hear the word real estate, they imagine stability. Something solid. Something that doesn’t swing wildly like the stock market.

REITs (Real Estate Investment Trusts) borrow that aura. They own and operate real estate; office parks, malls, warehouses, apartments, even data centers. They collect rent, pay out most of their earnings as dividends, and promise something every investor craves: steady income, inflation protection, and diversification.

But here’s the big question we rarely ask:

Do REITs really behave differently from stocks, or are they just stocks wearing a “real estate” costume?

Let’s find out.

What Exactly Are REITs?

REITs pool money from investors → buy and manage income-generating properties → distribute at least 90% of taxable income back to investors.

They are known for:

• High dividends
• Real-asset backing
• Supposed inflation protection
• Perceived diversification from equity markets

So the story sounds perfect.

But when you look at the data, the story changes.

Are REITs Really an Inflation Hedge?

Yes… but only sometimes.

Real estate values and rents often rise with inflation, so REITs usually benefit.
But the hedge breaks down in 4 scenarios:

So yes, REITs help, but only in a normal inflation cycle.
In stressful cycles, they behave just like equities.

The Most Important Question:

Do REITs Diversify a Portfolio?

Globally? No.
And this is where things get interesting.

Correlation With Equities (Since 2005)

Gold diversifies.
Bonds diversify.
When REITs market gets evolved, the correlation of REITs vs the Equities rises leading them to move in line with the equity markets and taking away the diversification benefit which investors expect.

Long-Term View (Since 1989)

Takeaway:
The belief that “real estate = diversification” does not hold when that real estate is packaged into a tradable market instrument.

REITs Look Like Stocks Even in Returns & Volatility

5-Year Rolling Returns (1989–2025)

REITs are equity cousins, not bond cousins.

Why Do REITs Behave Like Equities?

4 Simple Reasons

• Discount Rate Effect – Higher bond yields reduce present value of REIT cash flows, just like stocks.
• Investor Base – REITs are traded on stock exchanges → influenced by equity sentiment.
• Leverage – Borrowing makes them sensitive to interest-rate cycles and credit markets.
• Passive Flows – Being part of equity indices pushes REITs to move with equity flows.

Result?
In volatile or flat equity markets, REITs don't give the protection investors expect.

When Markets Go Flat: Do REITs Offset Anything?

Gold shines. Bonds steady.
REITs… move with equities.

Sometimes resilient, sometimes deeply negative.
REITs do not reliably cushion falls.

What About Indian REITs?

A Young Market With Different Behaviour

India’s first REIT listed in 2019, so the market is still developing.

Here’s what the data shows so far:

Correlation in India (Since 2019)

This is much lower than global levels.
But globally, low correlations in early years rise later.

So India’s current low correlation may not last.

Returns Since Inception (Jul 2019)

Indian REITs = lower volatility + equity-like behavior (so far).

So What’s the Final Verdict?

Key Takeaways

• REITs are real assets, but market behaviour = equities
• Global evidence shows high correlation between REITs and stocks
• Gold remains the most reliable diversification and inflation hedge
• Indian REITs are currently less correlated to equities, but this may change
• REITs provide income and partial inflation protection, not true diversification

In Simple Words

REITs maybe are great for income.
Good for partial inflation protection.
But not reliable as crash protection or a diversification shield.

If an investor wants:

• Stability → Bonds
• Hedge → Gold
• Income + mild volatility → REITs

REITs are a useful ingredient in a portfolio, but not the hero the brochures promise.