With the introduction of fractional or shared ownership, commercial real estate has now become both accessible and lucrative for a majority of Indians.
Even as recently as three to four years ago, most Indians did not consider commercial property as a practical investment, and chose to put their money solely in residential realty. Commercial real estate (CRE) — with its high ticket price running into tens of crores — just wasn’t accessible to most people. With the introduction of fractional or shared ownership, CRE has now become both accessible and lucrative for a majority of Indians.
However, commercial property is a whole different ballgame, and an investor’s lack of experience could actually end up costing them. The best way to make up for this gap is to partner with a fractional ownership platform that has the experience to navigate the CRE market.
Not all fractional firms are equal
For those new to the concept, fractional ownership allows investors to pool their money and buy Grade A commercial property jointly. So, say an office building worth Rs 100 crore can now be jointly bought by a group of people, with each person pitching in Rs 25 lakh or more. This has been made possible by fractional property platforms, which select lucrative properties, do the due diligence and paperwork on them and then bring investors together and facilitate the sale. However, not all fractional firms are equal.
It’s important to remember that fractional property as a concept is still fairly new in India, having been introduced in the nation within the last five years. There are currently a handful of companies that offer fractional property in India. Most of these are start-ups that have spotted a great opportunity and are fighting to establish themselves in this novel market.
The trick is to look for a company that is already established and has the knowledge and network to help investors get the best deal possible. Here’s how choosing a company with good pedigree can make a difference to your investment:
# Getting the best price: This is one of the most obvious ways that experience comes into play. While anybody with access to the Internet can learn how to search for property with high rental yield, only an experienced player will know how to precisely valuate the property and gauge its correct price, so that the investor does not end up overpaying. This ensures that the investor truly gets the best deal.
# Big gains for customers: All real estate should be thought of as an investment, which includes planning an exit point in the future (the only exception to this is buying a home). Only once the investor cashes out and recoups the capital gains, the investment life cycle is considered to be complete. Experienced companies will always have this long-term perspective and focus on maximising capital gains, and not just the rental yield. Eventually, if a smart investment decision has been made, the investor stands to earn more wealth from capital gains on resale than through rental yield, which should be considered more as a passive income.
# Not about single transactions: Unlike many start-ups that are focused on racking up as many transactions as possible to retain funding, an established company that is completely debt-free can focus on building a long relationship with the customer. This includes facilitating the sale of property, helping the customer track their asset and eventually also facilitate the resale.
# Long-standing channel partners: Needless to say, the longer a real estate company has been in the game, the stronger its network in the industry is.
Commercial real estate can be a very rewarding investment, provided it is made wisely. There aren’t many Indian investors who are as savvy with this type of asset, but in such cases, it can make all the difference by simply partnering with a company that brings experience with it.
(By Shiv Parekh, Founder of hBits)