Fractional Ownership - New Investment Opportunity for Retail Investors
The unique and fast growing real estate marketing concept of ‘Fractional Ownership’ has opened a new, safe, and profitable avenue of investment for retail investors in expensive A-grade office real estate, which was earlier beyond their investment capacity, observes Vinod Behl.
Earlier, the big-ticket, size, and high-risk investments were major hurdles for retail investors keen to invest in A-grade office real estate. But now, the evolving investment model of ‘fractional ownership’, is paving the way for retail investors to invest in premium office property. Under this model, ownership of the high value property is shared by multiple investors. This helps make the ticket size low, making property affordable and least risky for retail investors. With an investment of about ten lakhs, they can partly own expensive office real estate that costs over a crore. This way, they can reap good benefits of their investment in terms of high property investment, with attractive and stable rental returns.
According to Ankit Kansal, MD, 360 Realtors (a leading real estate marketing company), Fractional Ownership opens up new channels for retail investors to enter the lucrative Commercial Real Estate (CRE) space, so far restricted to bigger entities like PE companies, FDIs, NBFCs, HNIs etc. Now, alongside institutional investors, retail investors can earn smarter rental yields.”
Adds Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited and Tata Housing Development Company Limited, “Of late, high grade pre-leased office real estate has caught the fancy of investors due to the higher yield and no development and leasing risks. Now, REITs have added a new dimension to this asset class from the perspective of institutional and retail investors. In fact, investors are adding the premium office portfolio without having to either identify the property or do due diligence. They are also saved from the hassle of operating or managing a physical office asset.”
In general, there’s a big potential for investing in A-grade commercial spaces, which are developed by top-class developers (mostly the listed ones), and are mostly pre-leased by reliable marquee tenants (including MNCs), thus making these properties high yielding investments. Such is the potential of these properties that foreign institutional investors, pension and sovereign funds are investing big time in them. During the pandemic, premium CRE was the only real estate asset class that did not take a significant hit.
As the demand for high grade commercial office space grows, investment platforms like hBits are enabling fractional ownership in high value properties, thereby creating safe and profitable investment opportunities. The investment platform simplifies the process of buying, renting and reselling commercial assets. hBits shortlists properties for tailormade investments on the basis of their high investment potential. Due diligence of the properties is done on their current value, future appreciation, and potential risks. This helps in getting reliable, quality tenants with 3-5 years of lock-in period to ensure a steady rental income. There is a safe 6-month transition period through a security deposit in case of emergency exits by tenants.
Property management, leasing, releasing, exiting property is done online. One can even check property performance. Says Ankush Ahuja, Director, Investment, hBits, “The most alluring investment aspect is the way of distributing the risk and downside of the investment while at the same time getting steady rental benefits.”
What really makes this investment attractive is the healthy long-term appreciation and high yield. If one analyses data of the last 5 years, one finds that CRE as an asset class recorded 16 percent CAGR while the CAGR over the last 10 years was 15.3 percent. A grade CRE fetches rental returns between 6-10 percent. On an investment of 10 lakh, a retail investor can get a return of `60000-100,000. “Through supplies demand study, we ensure steady increase in the value of the property, and through the contractual agreement between tenants and owners, a guaranteed rental increase of 15 percent every 3 years is assured" says Ankush Ahuja.
Commercial real estate experts are confident that fractional ownership holds great promise. Ankit Kansal says that by 2025, the aggregate volume of Grade-A office spaces in India will reach 1 billion sq.ft, with headspace for another one billion of A-grade stock. This will translate into a total incremental investment of over $27 billion. A sizeable part of this investment will be directed through fractional ownership, alongside direct investments, SPVs, Stress Funds, REITs etc.
Sanjay Dutt adds that fractional ownership of office realty has huge potential as TEITs have demonstrated the gains and merits. He expects $ 2-3 billion of investment in office and over 100 msf of third REIT listing in 2021. According to him in the next 3 years, one can expect 300-400 msf of office stock listed as REITs, providing immense investment opportunity to both institutional and retail investors.
According to Ankit Kansal, in the foreseeable future, fractional ownership is going to define commercial leasing and investments - not just in India, but in global markets as well.
(The writer is Editor, Proptoq, a real estate magazine)
Earlier, the big-ticket, size, and high-risk investments were major hurdles for retail investors keen to invest in A-grade office real estate. But now, the evolving investment model of ‘fractional ownership’, is paving the way for retail investors to invest in premium office property. Under this model, ownership of the high value property is shared by multiple investors. This helps make the ticket size low, making property affordable and least risky for retail investors. With an investment of about ten lakhs, they can partly own expensive office real estate that costs over a crore. This way, they can reap good benefits of their investment in terms of high property investment, with attractive and stable rental returns.
According to Ankit Kansal, MD, 360 Realtors (a leading real estate marketing company), Fractional Ownership opens up new channels for retail investors to enter the lucrative Commercial Real Estate (CRE) space, so far restricted to bigger entities like PE companies, FDIs, NBFCs, HNIs etc. Now, alongside institutional investors, retail investors can earn smarter rental yields.”
Adds Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited and Tata Housing Development Company Limited, “Of late, high grade pre-leased office real estate has caught the fancy of investors due to the higher yield and no development and leasing risks. Now, REITs have added a new dimension to this asset class from the perspective of institutional and retail investors. In fact, investors are adding the premium office portfolio without having to either identify the property or do due diligence. They are also saved from the hassle of operating or managing a physical office asset.”
In general, there’s a big potential for investing in A-grade commercial spaces, which are developed by top-class developers (mostly the listed ones), and are mostly pre-leased by reliable marquee tenants (including MNCs), thus making these properties high yielding investments. Such is the potential of these properties that foreign institutional investors, pension and sovereign funds are investing big time in them. During the pandemic, premium CRE was the only real estate asset class that did not take a significant hit.
As the demand for high grade commercial office space grows, investment platforms like hBits are enabling fractional ownership in high value properties, thereby creating safe and profitable investment opportunities. The investment platform simplifies the process of buying, renting and reselling commercial assets. hBits shortlists properties for tailormade investments on the basis of their high investment potential. Due diligence of the properties is done on their current value, future appreciation, and potential risks. This helps in getting reliable, quality tenants with 3-5 years of lock-in period to ensure a steady rental income. There is a safe 6-month transition period through a security deposit in case of emergency exits by tenants.
Property management, leasing, releasing, exiting property is done online. One can even check property performance. Says Ankush Ahuja, Director, Investment, hBits, “The most alluring investment aspect is the way of distributing the risk and downside of the investment while at the same time getting steady rental benefits.”
What really makes this investment attractive is the healthy long-term appreciation and high yield. If one analyses data of the last 5 years, one finds that CRE as an asset class recorded 16 percent CAGR while the CAGR over the last 10 years was 15.3 percent. A grade CRE fetches rental returns between 6-10 percent. On an investment of 10 lakh, a retail investor can get a return of `60000-100,000. “Through supplies demand study, we ensure steady increase in the value of the property, and through the contractual agreement between tenants and owners, a guaranteed rental increase of 15 percent every 3 years is assured" says Ankush Ahuja.
Commercial real estate experts are confident that fractional ownership holds great promise. Ankit Kansal says that by 2025, the aggregate volume of Grade-A office spaces in India will reach 1 billion sq.ft, with headspace for another one billion of A-grade stock. This will translate into a total incremental investment of over $27 billion. A sizeable part of this investment will be directed through fractional ownership, alongside direct investments, SPVs, Stress Funds, REITs etc.
Sanjay Dutt adds that fractional ownership of office realty has huge potential as TEITs have demonstrated the gains and merits. He expects $ 2-3 billion of investment in office and over 100 msf of third REIT listing in 2021. According to him in the next 3 years, one can expect 300-400 msf of office stock listed as REITs, providing immense investment opportunity to both institutional and retail investors.
According to Ankit Kansal, in the foreseeable future, fractional ownership is going to define commercial leasing and investments - not just in India, but in global markets as well.
(The writer is Editor, Proptoq, a real estate magazine)
NBM&CW February 2021
