Fractional assets generate a 13-20 per cent internal rate of return (IRR) which is higher than most retirement schemes.
A new way of owning a property – Fractional ownership of property – helps people get ownership of a piece of property that they have been eyeing for some time, in a simpler and more affordable way.
Shiv Parekh, Founder of hBits, says, “Fractional ownership provides safety of investment, good returns and regular monthly income—the three hallmarks of a good retirement investment.”
Many work towards saving their earnings to afford to buy a car or a real estate property, which could take a number of years to gather the necessary amount. With Fractional ownership, experts say, one can claim the ownership of a property or asset in a more affordable way, and own a fraction of it.
According to industry data, fractional assets generate a 13 to 20 per cent internal rate of return (IRR) which is higher than most retirement schemes. In contrast, schemes like PMVVY and government securities and bonds generate a maximum of 7-8 per cent returns which is way lower than the returns from commercial real estate.
Parekh says, “Lease agreements for commercial properties are structured in such a way that tenants are locked in for a duration of 5-7 years with a rental escalation of 15 per cent every three years. This makes fractional ownership a great option for retired citizens with a need for a steady income.”
Is fractional ownership more beneficial than fixed deposits or mutual funds?
Although FDs are more secure and popular investments, their prevailing interest rate of 5.9 per cent is hardly able to beat inflation, comparatively, returns from fractional ownership are much higher at 13-20 per cent IRR.
“While mutual funds provide good returns, they are susceptible to market volatility which makes them unsuitable for older investors. In comparison, fractional ownership offers stable returns which are insulated from market ups and downs,” says Parekh.
How much should senior citizens invest in fractional ownership?
Industry experts say fractional ownership is a low-risk, high-return investment that should be a part of every retirement plan.
Senior citizens can invest up to 25 per cent of their savings on fractional ownership to gain steady rental income and capital appreciation. Experts say the rest can be invested in safe instruments like debt mutual funds, FDs and government-backed savings schemes.
Parekh says, “Investors who are opting for fractional ownership should always choose pre-leased Grade A assets to ensure the safety of their investment.”
He further adds, “Although the properties offered on fractional investment platforms are thoroughly vetted on a wide range of parameters, investors are advised to do their own due diligence before finalising their investment.”