Fractional ownership – that is gradually gaining popularity in India – is poised to reduce the financial burden on a single investor or owner of the property.
By Varun Mohan, Founder of Definite
A majority of individuals from Gen X (born between 1965 and 1980) were from the middle class families, who had to struggle hard to make a living. They started with meeting their family responsibilities, saving for their children’s education and ended up buying a residential property to make their children live a rent-free life. However, this made them restricted to only residential markets which helped them in owning a house.
The next generation, i.e. millennials (born between 1980 and 1996) who studied well and lived in their own house, thinks of investing in real estate when they reach or cross their 30s. However, huge down payments and the hefty amount that goes into EMIs may take years of their life. Even after owning a piece of property, they will be burdened with expenses of property maintenance and other taxes. Practically, it also seems difficult for millennials to invest in a commercial property they have been eyeing for years because of its high ticket price.
However, what if they could own a fraction of their dream property that could be leased to a verified MNC tenant and generate good cash flow?
The mode of ownership in the Commercial Real Estate (CRE) segment has evolved dramatically over the years. Just like timeshares and owning a fraction of a high-priced share, fractional ownership has rebranded the conventional CRE sector and emerged as a new way of investment for millennials.
Understanding Fractional Ownership in CRE
Fractional ownership – that is gradually gaining popularity in India – is poised to reduce the financial burden on a single investor or owner of the property. The concept simply refers to a set-up wherein a group of like minded people own a commercial property together and become fractional owners. This approach of purchasing an asset simply divides the expensive cost into multiple fractions allowing millennials to participate in new opportunities at a fraction of the cost previously required.
For instance, a premium commercial building that is leased to a tenant can cost Rs 50 crore for an owner/investor. A working professional with an investment amount of Rs 25 Lakh can fulfill his /her dream to purchase that property through fractional ownership and earn the similar benefits such as high yield in the range of 8-12 per cent, while the management of the asset is being taken care by an International repute agency and all the activities with the help of technology and AI are done at the click of the button.
Traditionally, investing in the CRE sector was considered the choice of wealthy and experienced investors. However, with the entry of new-age PropTech platforms, millennials can come together to purchase an asset, enjoy the yield, sell their fraction (whenever required) and even enjoy capital gains at the time of exit.
PropTech – Enabler of fractional ownership
Millennials come to belong to a visually-driven generation that experienced the evolution of the world to become digitally driven. They are tech-savvy and always thrive on ways to generate wealth. Amid the digital transformation of every business sector, technology has also transformed the way CRE is accessed by millennials.
New-age PropTech platforms have come forward to enable fractional ownership by providing easy access, transparency and asset management solutions to fractional owners. To be reliable in the industry, PropTech is backed by industry experts having experience in CRE and proprietary methodologies. Furthermore, it focuses on a diligent investment structuring process to protect the interests of fractional owners.
PropTech in fractional ownership has shown tremendous results in securing investments tailored to investors’ needs. Additionally, the most reliable of them leverage the potential of technology in diversifying the investors’ portfolio across different asset classes and locations. Apart from this, it eases the process of managing tax deductions for investors that eliminates time-consuming tedious tasks from the owners’ end.
With so many opportunities to invest in the market, millennials keenly plan to invest in tangible assets rather than intangible ones like stocks, fixed deposits, etc. Foreseeing the amount of yield generated by commercial property, millennials are looking to create passive income for themselves.