Indians for long have invested their
household savings in gold and real estate. You can’t but agree more with
Theodore Roosevelt: “Every person who invests in well-selected real
estate in a growing section of a prosperous community adopts the surest
and safest method of becoming independent, for real estate is the basis
of wealth.”
But real estate investment for many urban households
today is restricted to small plots of land or apartments. Residential
apartment investments have not yielded well compared to investment in
Grade A office buildings due to lower rentals in comparison to the commercial assets.
The Indian Grade A Office real estate
remained a preferred asset class for investors -even amid Work From Home
which triggered fear – owing to the asset’s robust fundamentals and
resilience. This segment has attracted equity investments to the tune of
$15.4 billion in the last decade. The Indian market also saw two
successful REIT listings of Embassy Office Parks and Mindspace REIT,
totalling Rs 9,250 cr, in recent times. Blackstone and Brookfield also
announced two biggest deals in the Indian real estate market, in the
midst of the pandemic, amounting to around Rs 25,000 cr, acquiring
office parks from Prestige and RMZ, respectively. The recent Brookfield
REIT listing was oversubscribed by a whopping 8 times. This is a
testimony of the vibrancy and long-term prospects of this sector.
Fractional
investment, a recent trend that has gained acceptance in the real
estate industry, is a new, safe and feasible way to pocket-friendly
investment in office real estate. Several investors pool in their money,
to buy Grade A office property jointly. The assets are vetted legally
and rigorous statutory and regulatory clearance checks are done prior to
offering them to such individuals investors for ownership. It works perfectly for investor’s pocket and is expected to become a dominant investment trend in the market over the next 3-4 years in India. In
advanced markets like the US, Singapore and Hong Kong, the concept has
already seen significant traction.
The investors receive rental
income in proportion to investments made in the property. Capital
appreciation attained at the time of sale is also shared among the
investors based on the same criteria. The merit of fractional ownership
is not just limited to owning an institutional grade commercial real
estate property but also:
# Earning a steady, regular rental income which is usually 2-3 times more than rental from residential units.
# Investment safety given the Grade-A quality of the underlying asset.
# Improved liquidity as these units can be sold at any point of time on the resale platform, thus providing liquidity.
# If invested for a considerable time, capital gains add unrivalled multiplier effect to overall returns.
Unlike
other asset classes such as equity and mutual funds, the commercial
real estate values or price fluctuations are less volatile. This is
because the lease agreements are for a longer term with fixed rental
income, with periodic escalations covering inflation as well. The
potential to add a regular income stream and a stable asset class is
something which will appeal to a forward-thinking Indian investor in the
long term.
Ownership of Grade A commercial real estate which
consists of office spaces, warehouses, factory etc requires substantial
amount of capital, typically running into several billions of rupees!
Hence, it has been the privy of the high networth individuals,
family-offices and institutes. Fractional ownership in quality
commercial asset class offers a great solution to someone looking for
pocket-friendly investment, outside the volatility of share markets and
low interest rates on fixed deposits. Hence fractional ownership will
offer a whole new investment asset class to Indian households, who can
own commercial property according to their budget. The fractional
ownership concept is demolishing the monopoly of HNIs in commercial real
estate investments.
If you decide to invest in something tangible like commercial real estate investment Property Manager or real estate Property management , it is important to be well prepared and to enter the market with
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