Fractional ownership is the future of commercial real estate investment – People
Indians have long invested their savings in gold and real estate. You can only agree with Theodore Roosevelt: “Anyone who invests in selected real estate in a growing part of a prosperous community uses the safest and most secure method to become independent, because real estate is the basis for prosperity.”
However, real estate investments for many urban households today are limited to small lots or apartments. Investments in residential housing have not performed well compared to investments in class A office buildings due to lower rents compared to commercial assets.
India’s Grade A Office properties remained a preferred asset class for investors due to solid fundamentals and asset resilience – even when working from home was a source of fear. This segment has attracted $ 15.4 billion in equity investments over the past decade. Two successful REIT listings for a total of 9,250 rupees were recently listed on the Indian market by Embassy Office Parks and Mindspace REIT. Blackstone and Brookfield also announced two largest Indian real estate deals in the middle of the pandemic, valued at around 25,000 rupees, acquiring office parks from Prestige and RMZ, respectively. The most recent Brookfield REIT listing was oversubscribed a whopping 8 times. This is a testimony to the vibrancy and long-term perspective of this sector.
Fractional investment, a new trend that has caught on in the real estate industry, is a new, safer, and workable way to make pocket-friendly investments in office properties. Several investors are pooling their money to jointly buy a class A office property. The assets are legally vetted and rigorous legal and regulatory clearance reviews are carried out before they are offered for ownership to such individual investors. It works perfectly for the pocket of investors and is expected to be a dominant investment trend in the market in India for the next three to four years. The concept has already made significant strides in advanced markets such as the US, Singapore and Hong Kong.
The investors receive rental income in proportion to the investments made in the property. The capital growth achieved at the time of the sale is also divided among the investors according to the same criteria.
The merit of the shareholding is not limited to owning a commercial real estate property with institutional quality, but also to:
• Achieve stable, regular rental income that is usually 2-3 times higher than renting residential units.
• Plant safety given the Grade A quality of the underlying asset.
• Improved liquidity, as these units can be sold on the resale platform at any time and thus provide liquidity.
• When capital gains are invested over a longer period of time, they add an unrivaled multiplier effect to the total return.
In contrast to other asset classes such as stocks and mutual funds, commercial real estate values or price fluctuations are less volatile. This is because the leases are long-term with fixed rental income and inflation also escalates at regular intervals. The potential to add a steady stream of income and a stable asset class will appeal to a future-oriented Indian investor over the long term.
Owning Class A commercial real estate consisting of office space, warehouses, factories, etc., requires a considerable amount of capital, typically several billion rupees! Therefore it was the insider tip of high net worth individuals, family offices and institutes. Fractional ownership in high quality commercial asset classes provides a great solution for someone looking for a pocket-friendly investment away from the volatility of the stock markets and low interest rates on time deposits. Hence, fractional ownership offers a whole new asset class to Indian households who can own commercial real estate on their budget. The broken property concept destroys the HNIs (High Networth Individuals) monopoly on commercial real estate investments.