India is witnessing a tectonic shift over the last few years with internet commerce connecting sellers and buyers across the country. This is rapidly increasing the purchasing power and young people are significantly investing in new forms of investment avenues.
Particularly with real estate, there has been a transformational change in the behaviour of retail customers who would mostly invest in the residential segment, as housing is amongst the most important assets for Indians. Apart from many individuals investing in traditional residential real estate, a niche segment of retail investors with a higher risk profile are investing in commercial real estate through fractional ownership.
According to TruBoard Partners, a tech-enabled real asset management company, fractional ownership of real estate is gradually gaining acceptance among investors as assets under management have touched Rs 4,000 crore in 2023, from Rs 1,500 crore in 2019. It added that the industry’s assets under management (AUM) is projected to grow at a 25-30% compound annual growth rate (CAGR) over the next 4-5 years.
This assumes significance as other investment avenues, including fixed deposits and the residential segment, offer returns in the range of 5-8% against commercial real estate, where fractional ownership plays out, offering 15-18% returns on investment. There are also a plethora of options within fractional ownership to invest in various asset classes - from joint development agreements to real estate investment trusts (REITs), fractional ownership platforms, co-living and vacation properties. Here, REITs and fractional ownership platforms are the most sought-after avenues which are led by industry professionals with decades of experience, ensuring one’s investments are safeguarded and continue to grow consistently.
Building passive income bit by bit
Today’s individuals are actively looking at building sources of passive income instead of entirely relying on their primary income to build their wealth while also shielding themselves from market shocks. Here, fractional ownership plays a crucial role in allowing individuals to earn a consistent monthly income from commercial real estate.
While the lack of market expertise and high upfront investment were deterrents for retail investors, fractional ownership solves each of these pain points. With low capital and professional management of properties, fractional ownership offers higher returns alongside diversification of portfolio to retail investors.
Furthermore, the ease of property selection and transactions make fractional ownership platforms the prime choice of young retail investors, who prefer the click of a button over bulky paperwork and on-ground research.
Trusted names work best
In any industry, it’s always advisable to go with the trusted names who bring in years of expertise to ensure the quality of investment is maintained. This holds true even for fractional ownership platforms and despite the lure of attractive returns, retail investors should opt for experienced players in this space and conduct their due diligence to understand major investors’ backgrounds and financial standing, the legality of the project being invested in, along with its technology stack to ensure easy entry and exit from the investment.
Retail investors should also understand the regulations around fractional ownership to become truly empowered. This includes building an understanding of REITs Regulation Act 2014 and the Real Estate Regulatory Authority (RERA), while being aware of the economic landscape of the country which is a key driver of the demand for commercial real estate.
As we look forward to the next decade of India’s rapid growth, commercial real estate is going to grow significantly and so will fractional ownership. Therefore, now is the right time to invest in this space to have a first-mover advantage, acquiring ownership in quality commercial properties and building wealth.
(The author is the founder and CEO of BHIVE Group)