Fractional real estate investment: What is it and how to make money – Explained

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June 26, 2020 10:03 PM

Fractional real estate investment is a new way to invest in commercial real-estate. The concept of fractional ownership in the real estate has been prevalent in the US and Europe for a decade and is now picking up in India.

Fractional real estate investment in indiaHow to make Fractional real estate investment in india

Fractional real estate investment is a new way to invest in commercial real-estate. The concept of fractional ownership in the real estate has been prevalent in the US and Europe for a decade and is now picking up in India. The alternate real estate asset class has been the playground for largely institutional investors since years and is now emerging as an investment avenue for the aspiring middle class and retail investors.

Strata property management co-founder Sudarshan Lodha told FE Online that fractional investment enables to buy a portion of a property. With this one can get all the benefits of owning a property without the upfront expense and ongoing hassles.

“Fractional real estate investment model is more so relevant for prime assets in commercial real estate (CRE) where the stakes are really high and an individual investor may not be able to have access to the entire asset,” Lodha told FE Online.

“It, therefore, is one of the best ways to invest in commercial real-estate, whereby one can invest in fractions of premium commercial properties and earn a monthly rental yield & build long-term wealth,” he added.

How to make fractional real estate investments in India

According to Lodha, fractional ownership is the combined ownership of a single asset by multiple investors. Due to high ticket sizes, investments in commercial real estate are usually done by high net worth individuals.

However, he said, at fractional investment platform like Strata, a potential investor can simply sign up on the platform and invest in any of current opportunities listed.

“One can check the resale market to invest in fractions from past opportunities. Once the property is fully funded, the investor starts receiving shares of the holding company and starts earning a monthly income. At the same time, the investment appreciates in value and the best part is the investor can sell his fraction as early as six months after investing,” said Lodha.

Benefits of Fractional real estate investment

One of the primary advantages of fractional real-estate investment is that it is the best way to invest in premium CRE. The model enables one to invest in fractions of premium commercial properties to earn a monthly rental yield and thereby build long-term wealth, said Lodha.

Fractional investments are a lucrative option for retail investors for whom CRE isn’t otherwise accessible owing to their high ticket prices. Besides regular rental income and long term appreciation of a stable asset class the model enables one to diversify his investments across multiple properties and locations and sufficient diversification thereby tends to reduce the portfolio risks.

“Another advantage of investing through Strata is that there is no lock-in period and one can sell your whenever you want through our resale platform,” he added.

Lodha said that a fractional investment platform helps you own a piece of high-end commercial properties across India.

Impact of COVID-19 on Fractional real estate investment

Lodha said that the Covid-19 outbreak has pushed down the sentiments in real-estate. However the change in investment climate has also brought about a shift in the asset allocation in terms of investors parking their funds. Investors are looking for stable and non-volatile investments considering the uncertainty and volatility in all other asset classes and hence CRE makes it the most lucrative asset class in such times.

Opportunity in warehouse

Lodha said, “Having grown at a CAGR of 21% in the past four years, we see warehousing mature as a sunrise sector in the real estate asset class. COVID-19 has been a game-changer for the Warehousing space. While the pandemic has disrupted supply chains and consumption patterns worldwide and most sectors of the economy are stressed, warehousing and logistics have been resilient with little to no disruption. Sectors such as 3PL, e-commerce, and FMCG are expected to recover in less than six months.”

“At Strata, we expect a spurt in warehousing demand of upto 30% in 2021 and beyond and therefore we need to start building for it now to cater to the increased demand. With supreme yields of 9-11% vis-à-vis offices and other retail spaces, where it ranges between 7-9% and 5-7% respectively, longest lease tenure ranging between 10-15 years and negligible impact of the pandemic ‘warehousing’ is one of the safest and most stable asset class in CRE. We are extremely bullish on ‘warehousing’ fast emerging as a non-volatile alternative investment class, especially in the post-Covid era.”

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