If this pandemic has done anything, it has forced us to rethink how we make financial decisions, especially how we save and invest. As if wage cuts and layoffs weren’t bad enough, many people lost their stock market savings in 2020, and some had to split up their fixed-term deposits or sell real estate to get their money. The question is how to make a pandemic-proof and reliable investment that offers daily and liquid returns that flow straight into our pockets, as well as long-term capital appreciation. Last year, one form of investment stood out on all three points: broken ownership of commercial real estate. Fractional Real Estate is a unicorn investment as it offers a rare combination of high returns and low risk. It provides the average citizen with the attractive returns on commercial real estate.
“Investments in commercial real estate are gaining in importance due to the increased volatility in the stock markets and the reduced returns on bonds and fixed-term deposits. The fraction of ownership of commercial real estate has given retail investors the opportunity to invest smaller amounts in India’s booming commercial real estate market, opening up an alternative source of income for them. The future of partial investments looks bright and sustainable and so retail investors have taken this train to navigate the wave of safe and healthy returns and diversify their investment portfolios, ”he says Mohit Goel, CEO of Omaxe.
Although the market in India is still in its infancy, its value is estimated at $ 5 billion and is growing. Fractional ownership is expected to be the future of the real estate market as it addresses one of the most important issues in commercial real estate: the high barrier to entry or the capital investment required. “Consider a luxury office space worth 90 rupees. Usually, such a large investment is only accessible to people with a high net worth (HNI). Now, with a fraction of the ownership, a person can only invest Rs 10 lakh to become a business owner and earn rental returns. TDI is launching a partial ownership concept for its commercial real estate in the third quarter of 2021, where buyers can hold a property over a long period of time that is rented to a world-famous brand over the long term, “he says Akshay Taneja from TDI Infratech.
Unlike the rest of the financial market, commercial real estate experienced only a modest recession in the first few months of last year’s lockdown and recovered rapidly in the third quarter. Compared to the previous quarter, CRE’s net absorption is up 63 percent while new deals are up 59 percent. “Although real estate in other countries suffered from the Covid-19 outbreak, office leasing in India grew at the same time due to the strong outsourcing industry in the country. This should be a good reminder to Indian investors, both local and non-local residents, that it is time for them to get a piece of the real estate pie too. The reality is that now is the best time to invest as CRE prices are likely to skyrocket in the future, ”he says Achal Raina, COO, Raheja developer.
Residential tenants tend to vacate the property regularly, resulting in a loss of rental income before a new resident can be found. Commercial property leases typically last three years, but in some cases it can be longer. The tenants of Class A real estate are usually multinational corporations, banks, or information technology companies with deep pockets. These tenants are not in arrears with the rent but pay on time. Often they decorate the room themselves to their liking. Also, because of the time, resources, and labor they put into converting the property into their offices, such tenants are more likely to renew their lease. For a better return, it is best to invest in a property that you have already rented.
The rental tours are credited to your bank account every month. Unlike bank deposits or bonds, which require you to wait for the investment to mature and expire before you can access your earnings, you can access your earnings immediately. “Fractional ownership guarantees increasing returns – rental returns and capital growth. In India, commercial real estate has grown at an average annual growth rate (CAGR) of 16 percent over the past five years. In addition to the surge in capital appreciation, you can also expect an increase in rental returns when you invest in a reputable real estate company. This increase is built into the rental agreement to protect your investment from possible inflation and to keep it constant over a longer period of time, ”he says Sagar Saxena, Project Manager, Spectrum Metro. Investors must do due diligence on the property regarding the venue, rental yield, capital appreciation potential, and the type of tenants it would attract.