As a society, we generally place a lot of loyalty and trust in real estate investments. Land ownership is considered one of the most important status symbols that ensures your position in the uppermost strata of the community. Especially in a country where the population is increasing at a fast rate, India is facing a scarcity of land, which ultimately signifies that real estate has proven to be a lucrative yet successful investment. But simultaneously is out of reach for people looking to join the landowner bandwagon.
Rather than investing in depreciating assets, people nowadays are keener to look into Commercial Real Estate that generates better rental cash flow. However, investing in commercial real estate requires deep and comprehensive knowledge and considerable money.
After COVID-19 took everyone for a financial run, fractional ownership of commercial real estate has emerged as a lucrative and promising concept for reliable investment that would offer the daily return and long-term capital appreciation. Due to its high return properties and low risk involved, fractional real estate ownership is a boon for average Indian citizens looking for profitable investment ideas.
In this article, we will discuss the meaning of fractional ownership and how it will prove advantageous for ordinary citizens of India.
Meaning of Fractional Ownership
Ownership is in itself a word that dictates sole right over any property. But when it comes to fractional ownership, it is the concept of owning just a part or fraction of any property instead of being the exclusive proprietor with the rightful advantages. In India, commercial real estate is a profitable investment that comes with certain financial hindrances that restrict the entry of average citizens into the industry.
Let’s understand fractional ownership with the help of an example!
For instance, there’s a premium commercial space worth Rs. 50 crore in one of the prime locations of Delhi. Taking into account the high range of capital investment, no one except a High Network Individual can afford to buy that commercial space. Even though the property offers a handful of benefits and is a safe investment option, an average Indian offering just Rs.10 lacs cannot claim it. But what if many people join hands and come together to pool their savings and make an offer for the Commercial space in question?
This will mean that every person will get to own a part of that space and split the benefits equally. As time passes by and the market value of the property increases, all the investors could earn rental returns and avail of the long-term capital benefits also. This is how the concept of fractional ownership works. In a nutshell, it empowers people with limited capital to be a part of the Commercial Real Estate market.
Why is Fractional Ownership Gaining Popularity in the Commercial Real Estate World?
As the Commercial real estate market is expected to grow by 13-16% in India, fractional ownership is heavily rising. Some of the top reasons behind this boom could be related to the fact that India is looking at an augmented demand for office or commercial space in upcoming years, a massive investment of foreign money related to commercial projects, etc. All these factors lead to a potential for high capital appreciation.
Commercial Real Estate generally includes Grade A properties commonly leased by MNCs, Banks, IT establishments, etc. Unlike the tenants of residential properties, such establishments don’t tend to vacate the property at a short notice period. On the contrary, a rental lease for allocating commercial real estate is 3 years or more. Therefore, one important advantage of renting real estate to commercial organisations is that they pay rent on time and set up the overall area themselves as per their requirements. Moreover, as they use the space for office purposes, they put most of their efforts into keeping the space organised.
So, seeing a high rental income and the consistent hike in the market value of real estate is leading many people eager to invest in fractional shares of commercial property in India.
Fractional Ownership Vs. Real Estate Investment Trust (REIT)- Which is More Advantageous?
Investment goes hand in hand with risk. There is no possible way to ensure that your investment will hold zero risk and guarantee high returns to fill your pockets. When we talk about REIT, i.e., Real Estate Investment Trust, it is a lot like mutual funds. Just like mutual funds pool the money and make investments, REITs pool money to invest in highly profitable properties on your behalf. Such properties are leased out to MNCs or business organisations, through which the part-owners get their share of capital. But yes, one thing to note is that REITs do not offer you the freedom to opt for the property to invest in.
Whereas, Fractional real estate investing happens completely with your choice. The top fractional ownership platforms first list down the CRE properties, and then, based on each property’s market price, the minimum ticket size is decided. Lastly, based on the ticket amount, you can select how many portions you wish to invest in.
Frequently Asked Questions (FAQs)
1. What is the main difference between REIT and Fractional ownership?
REIT does not allow investors to invest in the property of their choice, while fractional ownership is more democratic and works as per the choice of the investors.
2. Is fractional ownership a good option for investing in commercial real estate?
Yes, fractional ownership is a great option for investing in CRE. As the market value of CRE keeps increasing, your share value keeps increasing as well.
3. Can you own multiple shares under fractional ownership?
Yes, you can purchase multiple tickets on the basis of your budget and own the resulting percentage of commercial real estate.