The emergence of disruptive technologies such as blockchain and cryptocurrencies, coupled with the underperformance of fixed deposits and residential real estate, has made it harder for average Indian investors – especially younger investors – to invest in stable and pandemic-proof asset classes.
For the previous generation, FDs were a safe haven. But rates on FDs have steadily declined over the past decade. With FDs yielding around 5 percent, they are struggling to keep up with inflation rates in India, which recently topped the 6 percent mark.
Residential real estate was another popular investment option, particularly between 2003 and 2007. But the second half of 2010 proved dismal, with subdued returns of 5.5 percent per year.
In recent years, crypto transactions have attracted a lot of attention with the spectacular growth of NFTs, yield farming, layer 1 and layer 2 coins. Despite the fanfare, the crypto market is still in its infancy, which is why it remains a high-risk endeavor.
“What about mutual funds?” You can ask. While mutual funds have been a good alternative, the recent correction in stock markets due to skyrocketing oil prices, the threat of interest rate hikes and Russia’s invasion of Ukraine are a reminder of how vulnerable they can be.
The advent of fractional ownership has enabled new-age investors to enter the commercial real estate (CRE) market, formerly dominated by HNIs and NRIs.
But let’s understand what fractional ownership really is.
Suppose you want to invest in a commercial property worth Rs 25 crore but you don’t have enough money to do so. Fractional ownership model allows you to invest a fraction of that amount, say Rs 25 lakh, and own 1/12th of that property.
Simply put, fractional ownership is a facility that allows a group of like-minded investors to jointly own a CRE property. It ensures less risk, reduced cost burden, long term capital growth and stable monthly rental income.
Rewrite the Rules for CRE Engagement
Investors expected certain changes in the traditional CRE investment model, such as easier access to opportunities, improved transparency, data symmetry and streamlined processes. And as fractional ownership has managed to smooth those wrinkles in India, it’s repeating its success in the US, Europe and Japan.
The proof is in the data. According to a survey, fractional ownership is fast catching on in Bengaluru, Pune and Mumbai, with massive interest from accountants, lawyers, IT professionals and doctors.
The profiles of our investors show similar results: more than 70% of our investors come from multinational companies and from senior management who work exclusively in these professions. The data is a quick snapshot of the growing popularity of fractional ownership in the CRE sector.
The future prospects for commercial real estate – especially office space – are optimistic, so that the demand for part ownership will also increase hand in hand.
Twin-engine growth in the CRE area
Meanwhile, industry experts believe CRE will take off from the second half of 2022, meaning we are on the cusp of high capital appreciation and steady rental income. That being said, CRE’s average rental income (at around 9 percent per year) is more than three times that of its residential counterparts.
In summary, an investment option that delivers high returns at a lower cost burden is bound to be lucrative for average investors, especially new-age investors with new-age goals. Additionally, its increasing popularity among retail investors is a testament to how painless it has become to enter the CRE space.
Written by Shiv Parekh, the founder of hBits – a partial real estate platform. The views expressed are personal.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.