“The rich get richer, and the poor get poorer” is an adage for commercial real estate investments in India. It is an elite segment of the real estate industry with a market value of 25-30 crore. Sheesh! As a result of the high ticket size, CRE investment has remained limited to UHNIs and HNIs. Sigh! However, you and I can now purchase a commercial property for as little as Rs. 10 lacs via fractional ownership. Phew! What a relief!
Commercial real estate is a better investment than residential real estate because it provides higher rental returns and capital appreciation. Now, that sounds like a better deal to put your money in. But, commercial real estate properties cost crores and are worth 25-30 crores. Now, that is too expensive for an average Joe. On top of that, managing them on your own is not easy, especially for inexperienced investors looking to make a quick, sure buck. However, fractional ownership allows anyone to purchase a portion of commercial property at a price that is affordable to them. Fractional investing is creating new investment opportunities for the average person. Exciting! So, how do we start? Do you know where and how to? There are fractional ownership real estate companies like Assetmonk that can assist you. Assetmonk, for example, offers fractional ownership opportunities of high-grade commercial real estate for every investor with a minimum of Rs. 10 lacs.
What exactly does fractional ownership mean in real estate?
Ownership determines our exclusive right to any property. However, as the name suggests, fractional ownership is owning only a portion of a piece of property instead of being the sole proprietor with all rights. Commercial real estate in India is a profitable business right now. But it has unique financial constraints that prevent ordinary residents from joining the market due to high ticket sizes.
A luxurious office facility valued at Rs 100 crore, for example, can be found in one of Delhi’s prime locations. However, only a High Net-worth Individual (HNI) can afford to buy it due to the extremely large capital required. It promises numerous benefits and is a safe investment option. But, an average Joe with only Rs 15 Lakh cannot claim it. But what if a group of people banded together, pooled their resources, and bid on the Commercial Real Estate in question? That is, each employee owns a portion of the property and shares profits equally.
As time goes on and the market price of real estate soars, all who invested in commercial space will be able to reap rental returns and long-term capital gains. That is what fractional ownership of real estate aims to achieve. It allows people with limited resources to participate in the ownership of commercial real estate.
Why is fractional ownership of commercial real estate on the rise?
Fractional ownership in Indian commercial real estate is constantly rising. The commercial real estate market gets forecasted to expand by 13% to 16% over the next 5 years. Some of the reasons for this anticipated boom could get related to the increased demand for office space in the years to come in the country, an increase of large institutional investors, and investment of foreign money related to multiple commercial projects. All of these factors contribute to the possibility of significant capital appreciation.
Commercial Real Estate is a Grade A property frequently rented by MNCs or IT firms with massive budgets. Such organizations never leave on short notice, putting the property owner in a difficult situation. A commercial lease, on the other hand, is typically for three years or more. As a result, one significant benefit of leasing to commercial organizations is that they pay on time and layout the entire place to their standards.
Many potential buyers are considering investing in fractional shares of Commercial Real Estate after seeing a monthly deposit in their bank account and the constant increase in the market value of a property.
How Is Fractional Ownership Helping Indian Investors Buy Commercial Properties?
You have a residential property that you have been renting out to tenants. That residential property you own has just produced a yield of 1.5 percent to 3 percent (or Rs 15,000 to Rs 30,000 per year). And, given how badly the pandemic affected residential real estate, your property values have dropped by 2 percent to 7 percent in the last year. That does not sound promising.
There is a glitzy office building worth Rs 100 crore near your residential property. You want to invest because of the better and consistent rental returns of 6% to 10% per year that you can expect. A rental yield of Rs 60,000 to Rs 1 lakh per year could get obtained from such an investment. Is it not a great place to invest your money? But you do not have all of the funds right away, and you do not want to take out a loan. However, you do not want to part with such a profitable investment and a large sum of money. That is going to rob you of your sleep at night. Well, worry not. You can now invest in that glitzy office space. How so, you ask? Fractional ownership of commercial real estate allows you and many others to pool money each a minimum of Rs 10 lacs to invest in high-value projects such as commercial real estate. Thus, commercial real estate is no longer dominated by the wealthy.
Why should you invest in fractional ownership of commercial real estate?
Apart from affordability, the following are numerous reasons you should invest in fractional ownership of commercial real estate.
- Liquidity: They say real estate is an illiquid asset. But, commercial real estate is now easily liquidated by the owner thanks to fractional ownership. For example, if a person with a fractional property investment wants to put on sale their portion of the office space, they can quickly transfer to another interested investor. Also, keep in mind that sole property ownership does not give the proprietor the same flexibility in switching between assets.
- Non-Volatile Asset: The financial market is erratic, as demonstrated by the pandemic and the Russia-Ukraine War. Commercial real estate experienced only a minor slowdown in the early months of the lockdown last year and quickly recovered. CNBCTV18 has also reported that fractional ownership is one of the best ways to protect your portfolio better. Due to India’s strong outsourcing sector, office leasing continued to grow during the same period. More than 63 percent of office space leased in India gets rented by multinational corporations (based in Europe and the United States). It is a clear indication that it is time to get a piece of the real estate pie. Commercial real estate prices get expected to rise significantly in the coming years. So, now is an excellent time to put money into fractional ownership.
- Long-term tenants: Tenants in residential properties leave regularly. Thus, it causes the owner to lose rental income until a new tenant. However, a commercial property’s rental lease lasts three years or more. Indirectly, it only ensures you a steady income. Also, tenants in Grade A properties are large multinational corporations and information technology firms with large budgets. Such tenants do not default on rent but pay on time. Furthermore, due to the time, money, and effort invested in converting the property into offices, such tenants frequently extend the rental lease.
- Rental Income: If you invest in FDs, you must wait for the investment to mature before withdrawing your earnings. Fractional ownership of commercial property guarantees a rising rate of return in terms of both consistent rental yield and capital appreciation. Over the last five years, commercial property investment in India has grown at a CAGR of 16 percent. You can also expect a 15% increase in rental returns every three years if you invest with a reputable real estate company. This increase is built into the rental contract to protect against future inflation, ensuring that your investment remains stable over time.
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