Fractional Ownership – The New Turn in Commercial Real Estate Investing

Even if it takes a person several years to save enough money to buy their ideal home, this should not deter them from investing in real estate, even if it is only a modest amount. . Fractional ownership is an option for gaining a foothold in the real estate market without making a large financial investment.

Fractional ownership is a structure in which a group of investors combine their finances to purchase a property. They both own a high value asset as a liability. This method reduces the financial burden of owning a property for a single investor while allowing the investor to profit from the investment. It can be a residential or commercial asset of any kind.

Fractional ownership creates new opportunities for mom-and-pop investors, making it the next big thing in financial circles, which were previously exclusively open to HNIs. Due to the volatility of the stock market and banking products such as fixed deposits, sophisticated investors choose to invest in commercial real estate (CRE) (FD). CRE investing offers a good combination of these benefits, including a tangible underlying asset, the ability to hold cash, and the ability to earn monthly or quarterly cash flow.

Unlike mutual funds and stocks, where clear laws are in place, fractional ownership in CRE is a relatively new notion. A guardianship company handles all distributions from the sale of the property, including rental income and money from the sale.

Why Is Fractional Ownership of Commercial Real Estate Growing So Fast?

Fractional ownership is a business strategy in which several unconnected people pool their money to purchase a Class A commercial property and share the risks and rewards. The rapid popularity of this system is due to the following reasons:

Previously, high-end real estate investments were exclusively reserved for high net worth individuals and institutional investors. Experts devise innovative strategies to break the dominance of one type of investor and establish a democratic atmosphere in which all investors can benefit from high-end investments thanks to technological improvements.

For most Indian investors, joint ownership in commercial real estate is a new concept. Despite this, the Indian market is constantly expanding, with an increase of 16% expected over the next five years. The commercial real estate industry has weathered the outbreak with flying colors. Although impacted by the epidemic, the CRE has acquired a reputation among investors as a haven for money, particularly in relation to stocks and mutual funds, which have seen their value fall.

As Multinational Corporations (MNCs) relocate their headquarters or establish new operations in India, the demand for offices and workspaces will increase, necessitating a large supply of these assets. As a result, there is a lot of money to be made and a lot of money to be made.

Since commercial real estate is usually leased to banks and multinational corporations, it is a safe investment. Not only do these organizations lease property for longer periods, but they also pay rent on time and are more likely to renew their leases. All of these factors together would make it a fantastic source of passive income for any investor. Banks, multinational corporations, multi-storey outlets and other businesses are among the largest fractional ownership assets.

  • Transparency and liquidity

Now that we know that investing in condominiums can be a great long-term way to generate passive income, many investors are concerned about the liquidity of the asset. An extremely liquid asset is good. Business assets are considered illiquid, even though cash is the most liquid asset. activemonkon the other hand, offers assets with high liquidity and ensures that all transactions are transparent and the investor is not left in the dark.

Fractional Ownership as the Future of Business Investments in India

Indians have always invested their hard earned money in gold and real estate. “Every person who invests in well-selected real estate in a rising part of a prosperous city chooses the surest and safest path to independence, for real estate is the foundation of prosperity,” wrote Theodore Roosevelt . However, for many city dwellers, real estate investment is limited to modest land or apartments. Due to falling rents relative to commercial assets, investments in residential apartments have not performed as well as investments in Class A office buildings.

Due to strong fundamentals and the resilience of the asset, India’s Grade A office property remained a favorite asset class for investors, although there were concerns about working from home. In the previous decade, this market garnered $15.4 billion in equity investments. Embassy Office Parks and Mindspace REIT recently successfully listed REITs in India, raising a total of Rs 9,250 crore. Amid the outbreak, Blackstone and Brookfield launched two of the largest acquisitions in the Indian property market, each for around Rs 25,000 crore, in which they acquired office parks from Prestige and RMZ, respectively. Brookfield REIT’s recent offering was oversubscribed eight times. This speaks to the dynamism and long-term possibilities of the sector.

Split investment, a safe and reasonable new way to invest in office real estate that has gained favor with the real estate industry, is a safe and feasible new way to save money. Several investors pool their funds to jointly purchase a Class A office building. Before giving the assets to these individuals for ownership, they are legally vetted and subject to stringent legislative and regulatory controls. It is well suited to investors’ budgets and is expected to become a mainstream investment trend in India over the next 3-4 years.

The notion has already gained acceptance in sophisticated economies such as the United States, Singapore and Hong Kong.

Rental income is proportional to the amount of money invested in the property. The capital gain realized at the time of the sale is also distributed among the investors according to the same criteria. The benefits of co-ownership are not limited to owning institutional-grade commercial real estate, but also include:

  • Generate steady, steady rental income often 2-3 times that of residential apartments.
  • Investment security thanks to the Grade-A quality of the underlying asset.
  • Increased liquidity since these units can be sold on the resale platform at any time, increasing liquidity.
  • Capital gains provide an unparalleled multiplier effect on overall profits when invested for a long period of time.

Commercial real estate values ​​or price changes are less volatile than other types of assets such as stocks and mutual funds. Indeed, rental contracts are of a longer duration, with a fixed rental income and periodic indexations to take account of inflation. Over the long term, the ability to add a steady stream of income and a strong asset class will appeal to a forward-thinking Indian investor.

Ownership Levels Commercial real estate, which includes offices, warehouses, factories and other structures, requires a significant amount of cash, usually in billions of rupees!

As a result, it was only available to high net worth individuals, family offices, and educational institutions. Fractional ownership in a high quality commercial asset class is a great option for someone looking for a low risk investment outside of stock market volatility and low fixed rate deposits. As a result, condominium will open up a whole new class of investment asset for Indians, enabling them to purchase commercial property according to their financial constraints. The notion of co-ownership destroys HNI’s stranglehold on commercial real estate investments.

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