Despite its attractiveness, Commercial
Real Estate (CRE) as an asset class has largely remained inaccessible to
retail investors due to factors such as high ticket prices, illiquid
long term investments besides difficulties related to administering and
managing large assets. But those barriers have come crashing down,
thanks to multiple tech-enabled new-age platforms available today.
Retail
investors can now build wealth through CRE at a fraction of what it
used to cost earlier. Now an already attractive asset class offering a
source of passive income is what some of the new-age tech-empowered
platforms in real-estate today claim to offer. But how do they function
and what makes them so attractive? For those who want to invest in CRE
without real estate and don’t want to sink all of it in one property,
there are options like REITs (Real Estate Investment Trusts) and
fractional investment.
Like mutual funds, REITs can help
investors own income-generating properties such as commercial buildings
and office spaces. While on the other hand, Fractional Investment
enables one to invest in fractions in institutional grade-A while
earning a monthly rental yield besides enjoying long-term capital
growth.
Sudarshan Lodha, Co-founder, Strata, a fractional
investment platform says,” Investing in commercial real estate has
always be highly lucrative and fractional investment can be a fantastic
way to invest in it. For starters, fractional platforms invest in
high-quality rent yielding properties which may be otherwise exorbitant
for a retail investor besides one can get all the benefits of owning a
property without the upfront expense and ongoing hassles. The investors
can seamlessly enjoy passive income in the form of rental yields, 3X
superior vis-a-vis residential investments besides enjoying long-term
capital growth and portfolio diversification.”
Brookfield’s (REIT)
public issue which came early this month was a huge hit and raised up
to Rs 3800 crore. It became the third listed trust in India to be
successfully subscribed, close on the heels of listings of – Embassy
Office Parks and Mindspace Business Parks. Strata, a player offering the
fractional investment model raised Rs. 140 crore for a consortium of
three grade-A warehousing assets amid the COVID-19 pandemic.
While
they may seem to be similar, both are inherently different and cater to
specific investment ambitions. In the case of REIT, an investor does
not have direct exposure to a particular property but instead invests in
a fund that has fund managers who decide how the capital is deployed
and managed. Whereas a fractional platform connects you directly with
investment opportunities in CRE, allows you to invest and own fractions
in properties of your choice and while reaping its yield and capital
appreciation over time.
According to Manish Kumar, Co-founder,
RealX, “Fractional Ownership is a great way to open access to investing
in properties to better and more stable returns. Property is widely
considered as a safe investment, but some properties generate much
higher than others. Many people could not access such investment options
because they were generally high-value properties like a commercial
office or a showroom in a high street mall or even an industrial
warehouse. We at RealX follow a model that allows all the investors to
become proportionate and legal co-owners in the property and assign the
oversight etc. work to a professional asset manager.”
In terms of
ownership, REIT holds the Special Purpose Vehicle (SPV) and manages the
property unlike in fractional where individual investors are co-owners
of the SPV. Fractional platforms conduct rigorous due diligence before
selecting assets, as there is no minimum value that a property has to
meet nor any lock-in period involved. This means an investor on availing
fractional investment has the freedom to sell his ownership of the
asset portion to the interested parties. REIT on the other hand has a
minimum asset requirement of Rs 500 crore which makes REIT’s offerings
limited w.r.t the number of properties that it can undertake. Besides,
REIT does not offer transference of ownership or the rights to sell the
stake involved.
As per SEBI guidelines, of the real estate
portfolio held by a REIT, at least 80% of the assets should be completed
and must be revenue-generating properties. However, by virtue of
self-regulation, the fractional investment model, enables the expansion
of investment structures across balanced to high income-generating
assets which eventually offers higher returns in the long term. Besides,
a continuous pipeline of prime properties offers investor multiple
options to invest.
The entry cost in the case of REIT is quite low
and once listed, the units can be traded on the exchanges, which helps
you avoid the liquidity issue. On the other hand, the fractional model
may seem to be a little on the higher end in terms of the average ticket
size. While the minimum investment fairly depends on the asset listed
and its location, it would range anywhere as low as Rs 5 lakh to Rs 25
lakh.
When it comes to considering real-estate as an investment
class, due diligence is one of the most critical aspects that need to be
factored in. Besides a sound due diligence strategy, continuous
monitoring of the financial performance of investments is what helps
yield much greater results for portfolio growth. While fractional offers
continuous monitoring of asset valuations at regular intervals, REIT
carries out full valuation once a year besides half-yearly updates to
the same.
If you decide to invest in something tangible like commercial real estate investment Property Manager or real estate Property management Fractional or REIT , it is important to be well prepared and to enter the market with
the help of a professional, such as Indien Realstate Marketing Agent. This way you can limit risks and get the best Property Manager Now.
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