The world of property ownership is changing dramatically as a result of the exponential rise of fractional ownership in 2023. The way individuals access and diversify their commercial real estate holdings is being revolutionized by this creative investment strategy.
According to industry experts, fractional ownership of real estate is quickly becoming a viable investment option in India for investors, especially high net worth individuals (HNIs), and even end users, which may help them earn steady returns of 8-10 % from the booming real estate market.
One noteworthy choice that stands out as one of the greatest in India for investing is fractional ownership. Nonetheless, investing in commercial real estate structured debt presents an attractive option for individuals seeking to expand their real estate holdings beyond the realm of fractional ownership. This route is quite appealing and has earned a spot among the top investment opportunities in India. With a modest entry threshold of Rs. With an exceptional internal rate of return (IRR) of 17%, this investment channel offers potential for 10 lakhs.
What is Fractional Ownership?
Fractional ownershipis an investment model. Property ownership can be divided among several people into fractions.To put it simply, fractional ownership gives investors the opportunity to own a portion of valuable real estate for a much lower price than they would have to pay to purchase the entire property outright. Investors can now own shares in high-value grade A properties with lower investment threshold.
Generally, Earlier the real estate companies developed the real estate projects and sold single units to the big investors. So, due to shortage of funds investors weren’t able to invest in big projects. Now due to fractional ownership, small investors can invest in such funds and take the benefits of monthly income, secure funds and appreciation in the wealth.
The Growth of Fractional Ownership in Investments in Commercial Real Estate
Fractional ownership is a growing trend in the commercial real estate investment world, and in 2023, this growth is predicted to continue.
According to a recent report by TruBoard Partners, although the concept of fractional ownership of real estate is at a nascent stage in India, it is expected to grow in the next few years aided by the tech-driven platforms like Assetmonk.
Estimates suggest that the fractional ownership market in India has jumped from Rs 1,500 crore in 2019 to Rs 4,000 crore in 2023.
According to market experts, there are several benefits to fractional ownership of real estate, like affordability, diversification, and professional management of the property. When compared to traditional real estate, fractional ownership offers an additional significant advantage in terms of liquidity, since individual shares can be sold at any point.
Investors can now get involved in commercial real estate investment through fractional ownership. However, It is important to conduct research and understand the risks before investing.
Factors that are driving a change in fractional ownership of Real estate
Due to their flexibility and liquidity, stocks and mutual funds, two of the most popular investment trends of the past decade or so have seen significant growth. By utilizing technology, They empowered investors and made investing more convenient.
In a parallel world, REIT and fractional ownership have emerged as a new asset that are providing access to a wide range of real estate properties. REITs do, however, have a few drawbacks, including limited growth potential. But compared to all of these investment vehicles, fractional ownership offers the same or perhaps even more potential than any of these investment vehicles.
Today, there are various digital platforms like Assetmonk, that are allowing retail investors to participate in fractional ownership of commercial real estate assets without a large investment.
- Access to High-Value Properties:
Investors can own a “fraction” of the best or Grade A commercial real estate through fractional ownership. According to data, Fractional ownership is comparatively safer than riskier assets, yet it yields more capital appreciation than the safer assets.
- Hassle-free Management:
Imagine a situation where the owner of a residential property bears sole responsibility for finding a tenant and for any loss of rental yield resulting from vacancy. On the other hand, fractional ownership implies the ease of finding tenants, which in turn translates to higher yields for the investors.
- There is little chance of losing rental income because companies managing commercial real estate look for reputable corporations to rent from and have long-term contracts with lock-in agreements.
- Passive Investment:
When it comes to property management, upkeep, and repairs, this safety is also replicated. With fractional ownership, the upkeep of the property is managed by the company that investors have purchased fractions in.
- Potential Returns:
Finally, since commercial real estate, unlike residential properties, is typically located in well-known business centers that are constantly in demand by corporations, the rental yield and capital appreciation of the investors’ “fractions” are basically guaranteed.
A number of cutting-edge alternative investing platforms, including Assetmonk, are available in India that provide fractional real estate ownership. These platforms facilitate real estate investment by providing a user-friendly platform, transparent pricing, and hassle-free property management, making their investments Safe and Secure.
2. Long term Wealth generation like Mutual Funds
- Fractional ownership in commercial real estate has the potential to generate a 27.37% higher return on investment over a five-year period when compared to traditional investments like fixed deposits.
- Similar to mutual funds that have a dividend reinvestment plan, Fractional ownership model can create attractive returns over the long term if investors start investing the rental yield and capital appreciation back to own more fraction.
Let’s use an example to make things simpler. An investor chooses to put down an initial investment of ₹25 lakhs in a Grade A commercial property. Typically, the investor invests ₹1.5 lakhs annually in mutual funds. Assumed to be more in line with mutual funds, annual growth in real estate prices will be 7%. Thus, it would be worth ₹38 lakhs in six years.
Because the rental yield increases every three years, the rental yield will be roughly 9% for the first three years and 10% from the fourth. Thus, the entire amount of rental income for the time would be ₹14 lakhs. Going by these numbers, ₹54 lakhs would be roughly the total return on ₹25 lakhs in six years.
Compared to a mutual fund, this would then be sufficient to achieve life goals like saving for retirement or pursuing a higher education in a shorter amount of time.
3. Easy to invest and Transparent transactions
- Portfolio Diversification: Fractional ownership in real estate allows for effective portfolio diversification. Investors can now strategically allocate their funds across multiple properties, effectively spreading risk and enhancing the potential for favorable returns.
- Additionally, Investors now have access to unique data insights for each property and personalized services that are always accessible remotely thanks to the entry of fractional ownership platforms like Assetmonk.
Navigating the New Wave of Structured Debts in 2023
In 2023, structured debts will be the new face of fractional ownership, completely changing the way investors engage in real estate ventures. Innovative financial products like structured debts have unique benefits which attract both institutional and individual investors. This innovative fractional ownership approach is altering the investment landscape and creating more diversified and inclusive opportunities.
The development of debt securities that reflect a portion of a real estate asset is referred to as “structured debts” when discussing fractional ownership. Rather than actually owning a piece of real estate, investors hold debt securities that are backed by the asset’s value and possible future cash flows. A larger range of investors find this mechanism attractive as it allows them to access real estate opportunities without requiring a substantial upfront financial commitment.
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Which Way Is It Better to Invest in These Indian Structured Debts?
Assetmonk stands out as a leading structured debt investing platform in India, offering lucrative opportunities for investors. Pioneering in the real estate investment space, Assetmonk offers investors a seamless and fulfilling investing experience by fusing the power of fractional ownership with the innovative concept of structured debts.
Thanks to Assetmonk, investors can choose from a carefully curated selection of luxury real estate assets located throughout India. Experts in the field do thorough due diligence and pre-screening on these assets to guarantee their potential for sustained development and profitability.
Thanks to the platform’s structured debts model, investors can participate in these high-value real estate projects without having to pay a substantial upfront amount. Investors can own a portion of the property by acquiring debt securities backed by the asset’s value and potential cash flows. This allows them to diversify their investments and spread their risk over a number of different assets.
The Securities and Exchange Board of India (SEBI), the market regulator, is taking into consideration a regulatory framework for fractional ownership as co-ownership of real estate has begun to gain traction. After the introduction of REITs in 2007, experts predict that fractional ownership of real estate will be the next big thing. A regulatory framework will help legitimize the market and increase investor confidence.
Overall, Fractional ownership offers an innovative approach to invest in real estate in India. It provides investors with access to luxurious residences, diversity, and flexibility that might otherwise be out of reach for individual investors.
Taking into account variables like as location, legislation, market demand, economic forecast, and risk assessment increases the likelihood of profitable ventures. You may set yourself up for future development and financial success in India’s thriving real estate market by diversifying.
Assetmonk is India’s premier alternative investment platform. It has established a prominent presence in the co-living space market within the country. We specialize in extending tailored assistance and meticulously curated fixed-income investment products that are backed by real estate. Assetmonk offers its esteemed clients customized investment solutions with an ensured 17 percent annual percentage rate (IRR) and a minimum investment requirement of just 10 lakhs. Additionally, Investors can earn Tax benefits of upto Rs. 50,000.