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Real Estate Update: Will Fractional Ownership Take Off In India?

| Published on September 24, 2021

One of the many lessons this pandemic has taught us is investing smartly, as the prices of stocks fell and all investors could do was pull out their money under losses or wait anxiously for the prices to go up. Investors have realised the importance of diversifying their portfolios and also investing in more reliable asset classes.

Amidst the volatile stock markets, and lower interest rates on FDs, more and more people have started moving toward more reliable forms of investments such as real estate.

This was the same time when fractional ownership had started gaining popularity amongst Indian investors.  Literally speaking, fractional ownership means part ownership of an asset, mostly commercial real estate assets that give high returns.

Real Estate Fractional Ownership In India

In India, fractional ownership is still in its nascent stage and is yet to be recognised as a mainstream investment class like stocks and mutual funds, but is still gaining popularity.

To understand whether this investment model will take off in the future, we need to first understand its current status. While the concept is still new to people, the fractional ownership industry is estimated to be worth $ 5 billion in India alone.

Ownership of commercial Grade A real estate in India, today, consists of office spaces, warehouses and factories. As these require substantial amounts of money, CRE has remained the privy of HNIs and Ultra HNIs. Leaving middle-class investors to choose between highly volatile stocks and low interest fixed deposits.

Fractional ownership makes investing in top-class CRE assets affordable and easy and this is exactly what the Indian investors have been looking for.  Through this concept of real estate investments, Indians can own commercial property according to their budget, this also works to demolish HNI monopoly in the world of Commercial Real Estate Investment.

What Challenges Lie Ahead

As it is still a budding concept in India, an investor is advised to take calculated risks and not dive in without precautions. Since there is no standardised procedure yet, it is important that investors also deal with companies whose terms and conditions are acceptable to them. As fractional ownership gains popularity in India, the government will most likely want to address the problems and come up with rules of investment related to the usage of the fractional property. Until then, both parties will have to pick a path that works well for both of them.

Fractional Ownership- The future of Indian Real Estate

While most of us are questioning whether fractional ownership will last in India or not, some experts believe it to be the future of Indian real estate. Here is why

  • Making real estate affordable

Commercial real estate has always been considered highly profitable, but because of the expenses involved, middle-class investors rarely enjoy such premium investments. Fractional ownership allows investors to partake in high-end investment and go shoulder to shoulder with the HNI investors.

  • Assured asset appreciation and stable growth

Commercial Real Estate is one of the very few asset classes that quickly bounced back right after the pandemic. While other forms of real estate had taken a backseat during the pandemic, CRE and office leasing continued to grow in India. Moreover, MNCs coming into India to set up bases have also raised the demand for CRE making it a reliable investment, promising Asset appreciation and stable growth.

  • Long haul tenancy

Unlike residential properties, commercial leases are for long durations, and Grade-A properties, the tenants from MNCs or IT companies tend to rent out spaces for longer durations or extend their leases and never default their pays. This ensures a regular passive income for you.

  • Decent IRRs

Fractional ownership does not just promise decent returns, instead, it ensures increasing return rates in both, the rental yield and capital appreciation. If invested in a good company through a decent platform, investors can expect a 15% hike in their rental returns even. For instance, Assetmonk offers Grade-A products to its investors on which they can easily earn IRR from 12% to 21%.

  • Hassle-free investments

Custom carved for today’s investors, fractional investment is a pocket-friendly real estate investment that does not require any time or maintenance efforts from its investors. Real Estate investment platforms such as Assetmonk further simplify the investment process by performing due diligence on the CRE and only bringing Grade-A investment deals to the table. They also practice 100% transparency and customer-first policies.

Conclusion

We have witnessed a significant rise in investors looking to invest in CRE and other high-value assets as a result of the high volatility in the stock market and going under losses. Commercial real estate has always been an important asset for institutional and ultra-high-net-worth individuals and from our recent experience, we know that it can, to some extent, also be considered a recession-proof investment.

Fractional ownership allows individual investors to enjoy these safe and secure investment options and explore them for their own benefits. Real estate can be very beneficial if approached strategically, for both youngsters and senior citizens nearing retirement, fractional ownership can be a great and very reliable investment. We might even say, this fractional ownership is here to stay.

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