Gold or Fractional Real Estate: Where should you invest this Diwali?

October 23, 2021 10:27 AM

The fractional ownership model tackles the cons of traditional investment options and is set to become the future of real estate investing.

Shortlisting the right opportunity itself requires a certain understanding of the market and depends on many factors, which can get tricky for a common investor.

With Diwali around the corner, investors are eyeing their two most favored assets – gold and real estate. We’re breaking down both these investment options and why we think this new way of investing has a lot of merit.

Gold – safe, but not for big wins

India imports most of its gold, which means that the price of gold depends a lot on the rupee-dollar exchange rate, among other factors. Therefore, when the rupee devalues and inflation rises, gold prices increase. This makes gold a good hedge against inflation. We witnessed this during the first wave of the pandemic too, when gold rose all through 2020 and reached Rs 52,420 per 10 gm in mid-October 2020.

Off late, we’re witnessing a flatlining of this trend with the previous month (mid-October) recording Rs 47,250 to a maximum of Rs 49,460. This is a reduction of 7% Y-o-Y. As a matter of fact, current gold prices are almost at the same level as they were a decade back, which begets the question if it deserves the merit of a good store of wealth.

The bottom line is that gold as an investment option has many pros – it is safe since it works inversely with the market, is flexible, and is liquid. On the flip side, it is a conventional way of looking at investments and might not be the route to achieve exceptional returns despite seasonal highs. At the minimum, it should not be your go to asset class for generating wealth for retirement.

Real Estate – attractive, but painful

Real Estate has shown great resilience even through the pandemic and should be seriously considered when it comes to long-term wealth generation. Both commercial and residential real estate are showing healthy recovery and are preferred by most HNIs. However, investing in real estate is not without hassles.

Shortlisting the right opportunity itself requires a certain understanding of the market and depends on many factors, which can get tricky for a common investor. Moreover, most properties come with the burden of high capital deployment, loan and ensuing EMIs, and heavy time commitment in finding and managing the tenancy. Many professionals then prefer to stay in easily accessible investment classes over real estate.

Fractional Ownership – lucrative, making real estate investing paperless

The fractional ownership model tackles the above-mentioned cons of traditional investment options and is set to become the future of real estate investing. It opens gates to investing in extremely attractive real estate assets that we’ve kept away from in the past due to high entry barriers. Consider a pre-leased office space worth Rs 20 crore or a premium residential development at an up-and-coming location worth Rs 2 crore, each with high growth potential.

Now, you can invest in these opportunities with much lower investment amounts ranging from Rs 10 to Rs 20 lakh. A high-quality commercial real estate investment can generate an above 12% annualized return with minimal volatility and also give you security through a tangible asset. Yet, for many, these are out of reach or involve significant concentration risk.

With Fractional Ownership, one can co-invest in these assets with others by investing as low as Rs 10-20 lakh. Fractional Ownership platforms give you easy and affordable access to such investment opportunities, which are pre-vetted and managed by a team of professionals. It solves for access and affordability, making it as simple as owning stocks.

Fractional Ownership is on the rise both globally and in India. This fiscal there will be over Rs 1000 crore invested through this format. At Frxnl, we have created an investor-friendly platform too that not only makes the entire investment process hassle-free with an end-to-end digital platform but is also completely transparent. Considering this is a new product, it is natural to have apprehensions about the security of your money. An added advantage of investing fractionally is that your money will be completely secure with the adoption of escrow accounts overseen by institutional trustees. You can expect capital appreciation, and even monthly rentals (for leased properties) from your investment, making for attractive yields.

Last but not the least, Fractional Ownership solves for liquidity, by allowing an investor to sell their shares privately or through the platform.

That said, every investment opportunity does come with its risks. Fractional Ownership, just as traditional real estate investing, should only be considered for long-term appreciation. It needs an investment horizon of 3-5 years to generate good returns. The secondary sale of the market will also be driven by supply-demand forces, making it not an extremely liquid investment. However, most platforms do offer a good ecosystem of investors to facilitate an investor’s exit. The fractional way of investing is emerging rapidly and will be a USD 5 billion market by the year 2030 in India.

(By Amit Uppal, Co-Founder, Frxnl)

Disclaimer: These are the author’s personal views and you should consult your financial advisor before making any investment.

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