2020 was a year that got us to rethink our financial decisions, in terms of how and where we invest our hard-earned money. A pandemic came unannounced and put us in a perilous predicament, bringing with its merciless might, a trend of wage cuts and layoffs. As if that was not enough, the bleeding of the stock market and tumbling gold prices served as the final nail on the coffin of millions of investors who watched their savings getting pulverized into dust.
Though this triggered a hue and cry among investors who reckoned stocks and gold as safe investment havens, it also led people to vigorously search for a pandemic-proof, reliable means of investment offering good returns that directly went into their pockets and also has chances of capital appreciation.
Post pandemic, real estate is sounding like a credible option for investors. This sector has come out almost unscathed from the ravages of the pandemic. Being an appreciating asset, real estate has the benefits of high demand and good ROI. However, owning a property entails investing a ginormous sum of money that suits the likes of HNIs and ultra-HNIs who have specialized knowledge, the right connections and access to large capital.
But things have changed of late. In the past couple of years, the mode of ownership of assets has changed dramatically, due to the eruption of innovative business models like fractional ownership, paving the way for small and medium investors.
What is fractional ownership?
Fractional Ownership is a novel investment concept in commercial real estate where not-so-wealthy people can own a piece of real estate and enjoy high returns without breaking the bank. It helps small investors in getting access to multi-crore commercial properties and invest in a fraction of them without having to physically manage them.
What is the process of investment in fractional ownership?
Investing in fractional ownership is easy, transparent and devoid of any complex procedures. An investor has to visit an online real estate portal hosting fractional ownership of commercial properties. The properties come with all requisite information such as property documents, lease contracts, due diligence reports etc. and also accompanied by in-depth market analysis and valuation reports. After the property is selected, investors complete their KYC process online and make an investment against the issuance of shares of the company that owns the asset. This will make them real owners of a part of the asset.
Post-investment, investors won’t have to worry about any issue or management of the property as those will be taken care of by property managers. They will just relax and watch a good sum of money flowing into their pockets as monthly rents and also proceeds from the sale of the property. If they want to exit after a designated period of time, they can sell their shares to other investors.
A trend catching up in leaps and bounds
Though still in its infancy, this democratization of real estate investment is fast gaining traction in India. The fractional ownership market is worth $5 billion and is appreciating at a brisk pace.
Real estate experts have pegged this investment mechanism as the future of real estate since it squashes the high entry barrier of commercial real estate.
Commercial real estate has always been favoured by wealthy investors due to its good ROI. But today, new-age investors are trooping into this space through fractional investing, looking to get a piece of the pie. Even in times of the pandemic, investments in the commercial sector wasn’t affected much as the segment recovered quickly. This phenomenon has attracted Indian investors to vie for owning a part of a commercial real estate asset, as prices of CRE are expected to skyrocket in the future.
Convenience of investing in fractional ownership
The convenience of investing in fractional ownership is low risk and peace of mind. Even an individual who invests INR10 lakh in a property worth INR50 crore can enjoy good returns without worrying about its health and can sell it when he wants, taking with him handsome capital gains. Also, he can diversify his wealth portfolio and buy five different properties at different locations after gaining specialized knowledge about them.
Is fractional investment safe?
Today proptech has ushered a wave of transparency in the real estate sector. People looking to own a piece of a commercial asset can easily so do through proptech platforms for fractional ownership. These platforms empower investors about fractional ownership through complete real estate information, vetted due-diligence reports, in-depth market analysis and even provide data insights about the present and future performance of the property. This helps individuals to be sanguine about the stabilized opportunities and the yields they can expect from their investments.
