Over the past few years, the real estate industry in India has undergone significant changes, transitioning from a disorganized and unregulated state towards a more organized and regulated one, with a strong digital foundation. With the implementation of progressive regulations such as RERA, GST, and recently, REITS and Fractional Ownership Platforms for investments, the sector has regained the trust and interest of both domestic and international investors. The involvement of the government, combined with global economic influences, has played a crucial role in fortifying the market and establishing a clear path for a new investment opportunity.
In fact, the Securities and Exchange Board of India (SEBI) had recently released a consultation paper that proposes that any individual or organization, including FOPs (Fractional Ownership Platforms), involved in facilitating or having facilitated fractional investment in real estate through any means would be obligated to register with SEBI in order to operate as an MSM REIT (Micro, Small and Medium Real Estate Investment Trust). The suggested framework aims to foster the growth of the real estate market, establish protective measures for investors, and promote an organized development of both the sector and the market.
Why has Fractional Ownership emerged as a lucrative investment option?
Real estate investment is often considered a stable option compared to other investments, as it is not directly linked to market fluctuations. However, for many retail investors, the initial cost of accessing commercial real estate poses a significant stumbling block. Additionally, they may lack expertise in the industry and find it challenging to navigate compliance requirements. Thankfully, fractional ownership platforms have emerged to democratize investing in commercial real estate, making it accessible to retail investors. With a minimum investment amount ranging from ₹10 to 25 lakhs, anyone can now own a fraction of commercial real estate, enjoy monthly returns that are both predictable and high, and benefit from capital appreciation over time. Recent discussion paper released by SEBI reveals that fractional ownership platforms currently manage a total of ₹2,246 crores worth of assets under management. These platforms aim to offer a simple and elegant solution for retail investors seeking to enter the world of commercial real estate investment.
Following are a few key reasons for why fractional ownership in real estate is gaining popularity.
● Lower Entry Barriers: Investing in real estate often requires a significant upfront capital investment and one of the key advantages of fractional ownership is that it offers lower entry barriers. With fractional ownership, investors can enter the real estate market with a smaller financial commitment, making it more accessible to a broader range of retail investors. This democratization of real estate investing allows individuals to participate in the commercial real estate market and enjoy the potential financial rewards that come with it.
● Passive Income: Fractional ownership in real estate offers the potential for passive income through rental returns. Investors earn a proportional share of rental income generated by the property, providing a regular income stream. This can be particularly attractive for individuals seeking to diversify their income sources or achieve financial independence. Additionally, fractional ownership may offer the opportunity to sell the investment at a higher value in the future, potentially realizing capital gains.
● Diversification: Fractional ownership in real estate allows retail investors to diversify portfolios effectively. It offers stability and lower volatility compared to traditional options like stocks and mutual funds. The rise of fractional ownership platforms has made commercial real estate accessible to retail investors. Commercial real estate delivers higher returns than other assets, and fractional ownership provides access to these benefits. With consistent returns and the potential for long-term wealth building, fractional ownership in real estate is an appealing choice for retail investors looking to diversify their investments.
● Access to Premium Properties: Fractional ownership indeed provides individual investors with an avenue to access premium properties that were previously beyond their reach. By participating in fractional ownership, investors can gain a stake in institutional-grade properties backed by blue-chip tenants. This opens up opportunities to benefit from potential appreciation and rental income associated with high-value assets. Fractional ownership thus democratizes real estate investment, enabling individuals to diversify their portfolios and tap into the advantages typically reserved for institutional investors. The ability to invest in such properties offers a potential pathway for individuals to participate in the lucrative real estate market and potentially generate attractive returns.
● Hassle-free Management: Investing in real estate can come with various administrative burdens, such as property management, maintenance, tenant issues, and paperwork. Fractional ownership relieves investors from these day-to-day responsibilities. Professional property management companies typically handle all operational aspects, ensuring that investors can enjoy the benefits of real estate ownership without the associated hassles. This hands-off approach allows investors to focus on other priorities while still reaping the rewards of their investment.
In conclusion, it is paramount for individuals to recognize and leverage the numerous advantages that come with integrating commercial real estate (CRE) investments into their overall investment portfolio.
However, it is crucial for investors to diligently assess the pertinent factors that impact their investment objectives before arriving at a well-informed decision. By doing so, they can make astute choices that align harmoniously with their financial goals.
Aryaman Vir is the CEO of Aurum WiseX, holds the reins of YieldWiseX, formerly known as MYRE Capital.