OPINION: The future of real estate investing is Fractional
Most Gen X individuals (born between 1965 and 1980), particularly middle-class families, have spent most of their lives saving up for retirement, marrying their children, and after fulfilling all of these duties, eventually buying a home that is limited to their home markets.
On the other end of the population group are Millennials (born between 1981 and 1996) who often think of starting their real estate investments between the ages of 28-30 but even then have to start their investments with huge down payments and look for great loans with long terms that take years to repay. And as soon as you finally own the property, there are running costs
such as mortgage payments, property maintenance, property taxes and insurance.
In the years 1990-2010, following globalization and liberalization, travel across countries and continents became more frequent and individuals began to recognize themselves as global citizens. That changed further from 2010 to 2020 when these individuals invested in real estate around the world. It was more than after 2008, the global financial crisis, than
Investors went beyond traditional residential investments and ventured into various asset classes around the world such as commercial, warehouse, hotel, etc. However, in 2020 the world faced an unprecedented economic, humanitarian and health challenge.
The pandemic affected everyone and changed almost everything. We have advanced nearly a decade in terms of technology deployment due to the ongoing pandemic and the world is closer than ever. So what now? This is where broken property ownership comes into play. For the first time ever, investors can buy a share of a property anywhere in the world with fully compliant, fractional, tokenized ownership.
FracAssets is a tech-assisted distribution platform that enables investors to identify fractions of properties around the world. FracAssets now offers investors the opportunity to diversify their real estate portfolio by investing in fractions of commercial, residential, warehouse, hotel, second home, senior and residential communities around the world.
So what is fractional ownership? Fractional ownership, in simple terms, is when a number of investors who are not necessarily known
band together to invest in a real estate asset so that everyone can benefit from a portion of the income that the asset generates and an increase in the value of the real estate asset. For example, a 3,500-square-foot office space costing about £ 10 million in Mumbai’s commercial center may belong to 100 different and unrelated individuals, each with an office space
Invest an amount of £ 10 lakh. In this way, every investor achieves a return that is proportional to their respective share of the total rental return, enjoys a currency appreciation and can leave the investment at the prevailing market value of the property as soon as it is upgraded.
The future of real estate investments is only a fraction – investments across borders and nationalities – so what is happening globally? Fractional ownership could be a fairly new concept in India. However, we believe the idea remains and the future of real estate investing is only a fraction. If you look at global markets like the US, Canada, China, Singapore, and Hong Kong, partial investments have shown significant traction. It is expected that some property ownership will continue to become a dominant investment trend in Indian markets in the years to come, as it gives every generation of Indians the opportunity to invest and diversify their properties in what was previously done in the traditional way was limited and most did not have the financial means to do so.
Main advantages of fractional ownership:
Small ticket size:
Fractional real estate investments start at $ 10 in the US, $ 50 in Canada, and AED 2,500 in the United Arab Emirates (UAE) around the world. The fraction of ownership of a Class A property is a great solution for someone looking for a pocket-friendly property
Investing outside the volatility of the stock markets and low interest rates on time deposits. In this way, a completely new asset class is made available to investors who can now own real estate assets depending on their budget and location preferences.
Diversification of asset classes and locations:
As the saying goes, “don’t put all your eggs in one basket”. With a fraction of the ownership, an investor on a budget of, say, £ 50 can spread the investment over fractions of real estate and receive returns from a hotel apartment in Dubai, a senior living in Ontario, or a warehouse in India that in turn owns their portfolios diversified.
Investors are opening up a whole new way to generate returns – currency appreciation that goes beyond traditional rental returns and capital appreciation. By investing in multiple locations and in different currencies, investors can generate returns in dollars, dirhams, euros, etc., diversifying their currency portfolio and reducing the risk of investing in just one or two currencies. For example, a 23 year old who is just starting her career can save and invest in some of the UAE residential real estate and benefit from a rental return of around 6% to 7% along with capital appreciation. The investor will also benefit from the currency appreciation as the dirham is pegged to the US dollar.
Fractional ownership offers access to premium real estate that was previously only available to wealthy private individuals and large institutions with very large ticket sizes.
All properties listed on the platform are subject to strict review criteria and are subjected to thorough due diligence. Fractions of real estate products are professionally managed assets and generally a fully supported end-to-end process that is very easy for investors to experience. All an investor needs to know is your client’s documents (KYC) and an online bank account to begin investing. At FracAssets, we identify assets from various platforms that are ready, fully built, and pre-leased. This reduces the risk of dealing with properties that are under development or not being built.
How are the systems structured?
A Special Purpose Vehicle (SPV) is created for each property, which enables such property co-ownership.
An SPV is just a “separate new entity” – it is no different from starting a new business. A special purpose vehicle is a stand-alone company established for a specific purpose with its own assets and liabilities. Real estate is in newly established SPVs and customers are shareholders or partners of the SPV. SPV’s sole purpose is to hold the property on behalf of customers and no other operational activities are carried out in them.
FracAssets uses various global fractional platforms to regularly provide investors with real estate investment opportunities in commercial, residential, warehouse, hotels, second homes, senior living and cohabitation. Some options on our platform are a residential apartment in Dubai, United Arab Emirates, office space in Mumbai, India, a second home in Paphos, Cyprus, etc.
In summary, the future of investing in real estate is only a fraction of the future
Individuals can no longer be restricted to a particular nationality as determined on paper or by their place of birth. Technology has disrupted every industry and real estate is no different. With technology and social media, each of us is a global citizen – a world. A person who hasn’t thought beyond residential real estate doesn’t want to just invest globally now
But investing in commercial, warehouse, hotel, second home, senior and co-living businesses around the world. Fractional ownership is a trend that recently entered the Indian market and has since made real estate a more lucrative and practical investment option for all generations of Indians. Fractional ownership is gaining great acceptance and attraction among both investors
as well as the entire real estate industry and is here to stay.
About the authors
Authors include Hitesh Dhankani, Chief Executive Officer (CEO) of Analah21 and FracAssets, who was assisted by Fazilat Reshamvala.
Before making any investment decision, each recipient of this document or information should take steps to understand the risk and return of the investment and seek individual advice from their personal financial, legal, tax and other professional advisers. Investing in real estate and unlisted stocks involves risk and may not provide the expected returns. There is also the possibility that all of the capital could be lost. Past performance is neither a guarantee of future returns nor an indication of future performance.
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