These piercing skyscrapers, lavish office spaces and sparkling showrooms captured the attention of all passers-by. Millennials who spend half their day working in these plush spaces have all dreamed of owning them at least once in their lives. But owning crores of commercial real estate (CRE) exceeds the limits of what is possible for employees. Or at least it was until the advent of timeshare. Fractional ownership is sparking a real estate investment storm by offering individual investors the opportunity to own a slice of Class A commercial real estate.
For a long time, real estate investments were confined to the realm of residential properties, but things are changing right now. In fact, experts predict that condominium ownership in India will surpass $5 billion in the coming years. With investments as low as Rs5 lakh, individual investors can own a fraction of the premium CRE in metropolitan cities that house IT parks, multinationals and warehouses owned by e-commerce companies. As the condominium storm continues to rage, a cloud of ignorance and apprehension continues to mystify Indians.
Demystifying the concept of fractional ownership
When a group of investors, whether institutional or individual, purchase Class A commercial real estate in fractions, it is called co-ownership. By investing in such an asset, they agree to share passive ownership of a high-value CRE. The yields and income thus generated are distributed to the co-owners of the property. Fractional ownership reduces a single investor’s financial burden while allowing them to generate a steady stream of cash flow and long-term returns. Additionally, investors can diversify their portfolios by investing in multiple CREs in different locations.
For example, there is a premium office space in a prime location at Gurugram worth Rs 100 crore. long-term capital. However, an individual investor with only Rs20 lakhs to invest cannot afford to buy the property alone. But with the help of an online proptech platform such as Definite, the individual can share partial ownership of the office with a pool of like-minded investors. As a result, individual investors can invest in Rs100 crore of CRE at just a fraction of the cost.
Professionals working in India often suffer from a lack of viable investment options, especially in the area of real estate. Term deposits in the bank do not offer high returns, while stock market investments can yield high returns, but also carry high risk. At a time like this, investing in CRE appears to be a promising concept insofar as land is a valuable and secure asset,
generating monthly returns and long-term profits. After realizing a good capital gain, investors enjoy the autonomy to sell their fraction whenever they wish.
Catalysts for Fractional Ownership Growth
Fractional ownership has been prevalent in the West for over a decade now and has gained popularity in the United States, Singapore, Hong Kong and Europe. Gradually, the concept is spreading to India as well, due to a booming population, scarcity of land and a wide choice of CREs. For years, people in India have considered an investment in residential real estate reliable, but young investors with monthly salaries find it difficult to save such sums of money. Furthermore, investment in CRE has been restricted to institutional investors or High Networth Individuals (HNIs) due to their possession of the right connections, specialist knowledge and significant capital.
The advent of technology platforms is democratizing the CRE investment market by providing everyone with dozens of investment opportunities in different locations and asset classes. Younger generations who are tech-savvy and still finding ways to generate wealth are leveraging the resources of these proptech platforms to invest in high-quality properties. In addition, these platforms offer highly personalized services tailored to the needs and budgets of investors. With appreciable capital value and stable rental income, CRE has become a lucrative investment avenue for a large portion of the Indian population.
The outbreak of the global pandemic has further shaken investor confidence in conventional assets due to their poor performance. With increasing market volatility, low returns, and the ongoing pandemic, investors are turning to fractional ownership as a low-risk, high-return model. Portfolio diversification, easy exits, regular rental income and capital appreciation convinced individual investors to become co-owners of CRE. Furthermore, the CRE market in India is expected to grow by 13-16% over the next five years, making CRE co-ownership a profitable and promising business.
Barriers to entry such as lack of knowledge, lack of good connections and low capital have prevented a large number of Indians from investing in Grade A commercial properties. But as technology continues to standardize the rules of the game for commoners in different sectors and arenas, the CRE sector opens up to co-owners. Fractional ownership allows middle-class citizens to own a slice of yield-generating commercial properties across multiple locations despite inexperience and low capital. Partnerships with technology platforms can facilitate their CRE investment journey and help them generate wealth, diversify their portfolio and earn stable income. That day is not far off when employees working in large office buildings would also own these commercial spaces.
The opinions expressed above are those of the author.
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