Fractional Ownership: Latest trend in Real Estate Investment

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Indians have traditionally invested their savings in gold and real estate. Real estate is one of the best places to invest one’s savings in any day and age. But those in the urban households may not be fortunate enough to invest in large land areas. They have to contend with small plots of land or apartment and trends show that residential apartment investments have not yielded very well compared to the investments in Grade A office building due to lower rentals compared to commercial assets.  

The Indian Grade A Office real estate has been a preferred asset class for investors even during the lockdown and resultant work from home arrangements which triggered fear due to the asset’s robust fundamentals and resilience. It has managed to attract equity investments worth $15.4 billion in the last decade. The Indian market also witnessed a couple of successful REIT listings of Embassy Office Parks and Mindspace REIT, totaling Rs. 9,250 crores. Amid the pandemic, Blackstone and Brookfield announced the two biggest deals in the Indian Real Estate Market. This amounted to Rs 25,000 crore. They also acquired office parks from Prestige and RMZ respectively. The Brookfield REIT listing was oversubscribed by 8 times showing the long-term prospects of this sector.

Fractional investment is a new, safe and feasible way to pocket-friendly investment in office real estate. Grade A office property is jointly bought by several investors who pool in their money. Rigorous amounts of statutory and regulatory checks are done before offering them to investors for ownership. It is expected to become a dominant trend overcoming 3-4 years in India. In the US, Singapore, and Hong Kong markets it has already shown significant traction.

The investors, by the proportions of investments made, receive rental income and capital appreciation at the time of sale. Fractional ownership also provides benefits like

  • A steady, regular rental income that is 2-3 times more than those from residential units
  • Investment safety is given by the Grade A quality of the underlying asset.
  • Improved liquidity as they can be sold at any point of time on the resale platform
  • If invested for a considerable amount of time, capital gains also add unmatched multiplier effect to total returns

Price fluctuations in the case of commercial assets are less volatile compared to equity and mutual funds as the lease agreements are for the long term with fixed rental income and periodic escalations covering inflation as well.

Ownership of Grade A commercial real estate that includes office spaces, warehouses, factories, etc. requires a huge amount of capital which may go up to billions as is for the same reason the privy of those with high net worth. Fractional ownership in quality commercial assets is a pocket-friendly investment and offers a whole new asset investment class to Indian households who can own commercial property that is within budget.

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