Fractional ownership – the new turning point in commercial real estate investing

Although it may take a person several years to save up enough money to purchase their perfect home, this should not stop them from investing in the real estate business – even if it is only a modest amount. Fractional ownership is one of the options to gain a foothold in the real estate market without making a large financial investment.

Fractional ownership A structure in which a group of investors pool their financial resources to purchase a property. Both possess a high-value asset in a passive ability. This method reduces the financial burden of owning a property for a single investor while also allowing the investor to profit from the investment. It may be a residential or commercial asset of any kind.

Fractional ownership creates new opportunities for small investors,” making it the next big thing in financial circles, which were previously exclusively open to the wealthy. Due to volatility in the stock market and banking products like fixed deposits, informed investors are choosing to invest in commercial real estate (CRE) (FDs) Investing in a CRE offers a good mix of these benefits, including tangible underlying assets, the ability to hold funds, and the opportunity to earn monthly or quarterly cash flow.

Unlike mutual funds and stocks, where there are clear laws, fractional ownership in a CRE is a relatively new idea. The custodian company manages all distributions from the sale of the property, including rental income and the sale of funds.

Why is fractional ownership of commercial real estate increasing so fast?

Fractional ownership is a business strategy in which many unrelated individuals pool their money to purchase a first class commercial property and split the risks and benefits. The rapid popularity of this system is due to the following reasons:

Previously, premium real estate investments were available exclusively to high net worth individuals and institutional investors. Experts devise innovative strategies to break the dominance of one type of investor and create a democratic climate in which all investors can benefit from high-quality investments as a result of technological improvements.

For most Indian investors, fractional ownership in commercial real estate is a new concept. Despite this, the India market is constantly expanding, with a 16 percent increase expected over the next five years. The commercial real estate industry has gone through the epidemic with flying colors. Despite being hit by the pandemic, CRE has earned a reputation among investors as a haven for money, especially compared to stocks and mutual funds, which have seen their value plummet.

As multinational corporations (MNCs) move their headquarters or establish new operations in India, the demand for offices and workplaces will increase, necessitating a large availability of these assets. As a result, there is a lot of money to be made and a lot of money to be made.

Since commercial real estate is usually rented out to banks and multinational corporations, it is a safe investment. These organizations not only rent out properties for longer periods but also pay rent on time and are more likely to renew their leases. All these factors combined will make this a great passive income source for any investor. Banks, multinational corporations, multi-storey retail outlets, and other businesses are among the largest fractional ownership assets.

  • Transparency and Liquidity

Now that we know that fractional equity investing can be a great long-term way to produce passive income, many investors are concerned about the liquidity of the asset. Very good liquid assets. Business assets are considered illiquid, although cash is the most liquid asset. monk assetsOn the other hand, it offers highly liquid assets and ensures that all transactions are transparent and the investor is not left in the dark.

Fractional ownership as a future for business investments in India

Indians have historically invested their hard-earned money in gold and real estate. Theodore Roosevelt wrote, “Everyone who invests in well-chosen real estate in a growing part of a successful town chooses the surest and most secure path to becoming independent, for real estate is the bedrock of prosperity.” However, for many urban dwellers, real estate investment is limited to modest plots of land or apartments. Due to lower rents compared to commercial assets, apartment investments have not performed as well as first-class office building investments.

Given the asset’s strong fundamentals and flexibility, top-tier Indian office properties remained the preferred asset class for investors, even when “work from home” sparked concern. In the past decade, this market has raised $15.4 billion in equity investments. Embassies office complexes and Mindspace REIT both have successfully listed REITs in India recently, raising a total of Rs 9,250 crore. Amid the pandemic, Blackstone and Brookfield launched two of the largest acquisitions in the Indian property market, each for approximately Rs 25,000 crore, taking office complexes from Prestige and RMZ, respectively. Brookfield REIT’s latest offering has been oversubscribed eight times. This is evidence of the sector’s dynamism and its long-term potential.

micro investmentIt is a new, safe and affordable way to invest in office properties that has gained popularity in the real estate sector, a new, safe and feasible way to save money. Several investors are pooling their money to jointly purchase a first-class office building. Before assets are granted to these people for ownership, they are legally vetted and subject to rigorous legislative and regulatory clearance checks. It fits investors’ budgets well and is expected to become a dominant investment trend in India over the next 3-4 years.

The idea has already gained traction in developed economies such as the United States, Singapore and Hong Kong.

The rental yield is proportional to the amount of money invested in the property. Capital gains realized at the moment of sale are similarly distributed among the investors according to the same criteria. The benefits of fractional ownership are not limited to owning an institutional quality commercial property, but also include:

  • Achieving a steady and regular rental return that is often two to three times more than the income of residential apartments.
  • The safety of the investment due to the quality of the underlying assets is first-class.
  • Increased liquidity as these units can be sold on the resale platform at any moment, resulting in increased liquidity.
  • Capital gains provide an unparalleled multiplier effect on overall profits when invested for a long period.

Commercial property values ​​or price changes are less volatile than other types of assets such as stocks and mutual funds. This is because leases are for a longer period, with fixed rental income and periodic escalation to account for inflation. In the long run, the possibility of adding a regular income stream and a solid asset class will appeal to the forward-looking Indian investor.

Degrees of ownership: Commercial real estate, consisting of office space, warehouses, factories, and other structures, requires a good deal of cash, generally in the billions of rupees!

As a result, it was only available to high net worth people, family offices, and educational institutions. Fractional ownership in the high-quality commercial asset class is an excellent option for someone looking for a low-risk investment away from stock market volatility and low fixed rate deposits. As a result, fractional ownership will open up a whole new investment asset class to the Indian people, allowing them to purchase commercial property based on their financial constraints. The idea of ​​fractional ownership is destroying the control of the wealthy over commercial real estate investments.