Fractional Ownership – The New Turning Point In Commercial Real Estate Investing

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Although it may take several years for a person to save enough money to buy their ideal home, this should not deter them from investing in the real estate business – even if it is only a modest amount. Fractional ownership is one option to get a foothold in the real estate market without making a large financial investment.

Fractional ownership is a structure in which a group of investors combines their finances to buy a property. They both possess a high-value asset in a passive capacity. This method lessens the financial burden of owning a property for a single investor while also allowing the investor to profit from the investment. It might be a residential or business asset of any kind.

Fractional ownership is creating new opportunities for mom-and-pop investors,’ making it the next big thing in financial circles, which were previously exclusively open to HNIs. Because of the volatility in the stock market and banking products such as Fixed Deposits, informed investors choose to invest in Commercial Real Estate (CRE) (FDs). CRE investing offers a good mix of these benefits, including a tangible underlying asset, the capacity to conserve money, and the opportunity to earn monthly or quarterly cash flow.

Unlike mutual funds and stocks, where clear laws are in place, fractional ownership in CRE is a relatively new notion. A trusteeship firm manages all distributions from the sale of the property, including rental revenue and selling money.

Why Is Commercial Real Estate Fractional Ownership Increasing So Quickly?

Fractional ownership is a business strategy in which several unconnected individuals pool their money to buy a Grade-A commercial property and split the risks and benefits. This system’s fast popularity is due to the following reasons:

  • System of Autonomy

Previously, premium real estate investments were exclusively available to high-net-worth individuals and institutional investors. Experts are devising innovative strategies to break down the dominance of one type of investor and establish a democratic atmosphere in which all investors may benefit from high-end investments as a result of technological improvements.

  • The pandemic’s lessons

For most Indian investors, fractional ownership in commercial real estate is a novel concept. Despite this, India’s market is constantly expanding, with a 16 percent increase predicted over the next five years. The commercial real estate industry passed the epidemic with flying colors. Despite being impacted by the epidemic, CRE has earned a reputation among investors as a haven for money, especially in comparison to equities and mutual funds, which have seen their value plummet.

  • Workplace demand

As multinational corporations (MNCs) relocate their headquarters or create new operations in India, demand for offices and workspaces will increase, necessitating a large supply of these assets. As a result, there’s a lot of money to be made and a lot of money to be made.

  • Reliability

Because commercial real estate is typically leased to banks and multinational corporations, it is a safe investment. These organizations not only lease property for longer periods, but they also pay rent on time and are more likely to renew their leases. All of these factors together would make this a fantastic passive income source for any investor. Banks, MNCs, multistory retail outlets, and other businesses are among the greatest fractional ownership assets.

  • Transparency and liquidity

Now that we know that investing in fractional ownership may be a terrific long-term way to produce passive income, many investors are concerned about the asset’s liquidity. An extremely liquid asset is good. Commercial assets are considered illiquid, even though cash is the most liquid asset. Assetmonk, on the other hand, offers assets with high liquidity and ensures that all transactions are transparent and that the investor is not left in the dark.

Fractional ownership as the future of commercial investments in India

Indians have historically put their hard-earned money into gold and real estate. “Every person who invests in well-selected real estate in a rising portion of a successful town selects the surest and safest route of becoming independent, for real estate is the bedrock of prosperity,” wrote Theodore Roosevelt. However, for many urban residents, real estate investment is limited to modest pieces of land or flats. Due to lower rentals in comparison to commercial assets, residential apartment investments have not performed as well as Grade A office building investments.

Due to the asset’s strong fundamentals and resiliency, Indian Grade A Office real estate remained a favorite asset class for investors, even as Work From Home sparked concern. In the previous decade, this market has garnered $15.4 billion in equity investments. Embassy Office Parks and Mindspace REIT both successfully listed REITs in India recently, raising a total of Rs 9,250 crore. Amid the epidemic, Blackstone and Brookfield launched two of the largest acquisitions in the Indian real estate market, each for approximately Rs 25,000 crore, in which they acquired office parks from Prestige and RMZ, respectively. The recent Brookfield REIT offering was eight times oversubscribed. This is a testament to the sector’s dynamism and long-term possibilities.

Fractional investing, a new, secure, and reasonable way to invest in office real estate that has gained favor in the real estate sector, is a new, safe, and feasible way to save money. Several investors pool their funds to jointly purchase a Grade A office building. Before giving the assets to such persons for ownership, they are legally vetted and subjected to stringent legislative and regulatory clearance checks. It suits investors’ budgets nicely and is projected to become a dominating investment trend in India over the next 3-4 years.

The notion has already gained acceptance in sophisticated economies such as the United States, Singapore, and Hong Kong.

The rental revenue is proportional to the amount of money invested in the property. The capital gain realized at the moment of sale is likewise distributed among the investors according to the same criteria. The benefits of fractional ownership are not restricted to owning a commercial real estate property of institutional quality, but also include:

  • Generating a consistent, regular rental revenue that is often 2-3 times more than that of residential apartments.
  • Investment safety due to the underlying asset’s Grade-A quality.
  • Increased liquidity since these units can be sold on the resale platform at any moment, increasing liquidity.
  • Capital gains provide an unrivaled multiplier effect to overall profits when invested for a long time.

Commercial real estate values or price variations are less volatile than other asset types such as stocks and mutual funds. This is because the lease agreements are for a longer length of time, with a set rental income and periodic escalations to account for inflation. In the long run, the possibility to add a regular income stream and a solid asset class will appeal to a forward-thinking Indian investor.

Grades of Ownership Commercial real estate, which comprises office spaces, warehouses, factories, and other structures, necessitates a significant amount of cash, generally in the billions of rupees!

As a result, it has only been available to high-net-worth people, family offices, and educational institutions. Fractional ownership in a high-quality commercial asset class is an excellent option for someone searching for a low-risk investment outside of the stock market’s volatility and low fixed-rate deposits. As a result, fractional ownership will open up a whole new investment asset class for Indian people, allowing them to purchase a commercial property based on their financial constraints. The notion of fractional ownership is destroying HNIs’ stranglehold on commercial real estate investments.