Amit Uppal, Co-Founder, Frxnl
Investors are looking to hedge their risks by diversifying their portfolios with Alternative Investments such as Commercial Real Estate.
Amit Uppal, Co-Founder, Frxnl

An alternative investment is one which is outside the traditional pail of investments in Bank Deposits, Stocks and Bonds, Property, and Metal (or Gold). The classification is not watertight. Some classify property and metal as alternative investments too.

India has had a long-standing affair with real estate. As per RBI, 84% of our wealth allocation is in real estate. We have over USD 1.5 trillion of rental home inventory in urban centres alone - a third of which is unoccupied. Investors of this low-yielding asset class hope and pray for a spike in capital appreciation to cover the low yields. But again, the last decade has not exactly been kind to a rise in residential home pricing in most parts of the country. So, what goes into this unusual high interest in residential real estate, and can we really take this proclivity for granted?

What has driven investment in residential homes?
It is a combination of factors; historically, it has acted as an inflation against inflation on a long-term basis, but more importantly, the trend has been supported by a strong legacy bias, and a slow rise in maturity of the Financial Markets. Its disproportionate allocation in one’s wealth portfolio also has to do with the relative size of the investment, which crowds out alternative opportunities.

Winds of Change
Disruption is being driven by three Ds: Digitization, Demography, and Diversification. Each aspect of our lives has been touched by Digitization. The current pandemic has only emphasised the impact of technology, and a relatively young demography, with an average age of 27 years, seeks technology-enabled solutions first before anything.

On the other hand, real estate investing is onerous - from search to registration and tenancy management - most of it is still a very physically demanding process. Furthermore, investors today feel the need (and have access to opportunities) to diversify - be it coming of age of Financial Markets and easy access provided by Mutual Funds or zero-brokerage trading platforms.

As a matter of fact, traditional real estate investing is now a counter-culture to these two prominent trends as it remains physical, illiquid, and unaffordable. So, as the more tech-savvy generation grows older and become decision makers, they will weigh in convenience, ROI, and break away from the legacy bias.

Rise of Alts
Alternative Investments (outside of the traditional markets of stocks, fixed income or cash) include non-traditional investment avenues such as global equities, sovereign gold bonds (SGBs), real estate investment trusts (REITs), hedge funds, private equity, commodities, collectibles, and the list goes on.

They essentially help diversify the wealth portfolio. In fact, JP Morgan had issued an advisory in light of the upheaval caused by the pandemic to transform the 60:40 distribution between Equities and Bonds to Equities, Bonds, and Alternatives (or Alts).

Alts are a growing segment that has doubled from the 6% share in 2004 to the current 12% of total global wealth. They are further expected to grow to 18-24% of the total investible market by 2025.

Focus on Commercial Real Estate (CRE)
As uncertainty remains high in public equity and bond markets, investors want to hedge their risks by diversifying their portfolios with Alternative Investments.

CRE is a property used for business purpose, be it an office, warehouse or a retail store. Besides superior return potential of 8-10% rental yields, what attracts smart money to seek CRE is the predictable cash flows and capital preservation through an asset-backed investment. CRE has a low correlation with public markets, and investors (globally) invest in this Alternative Investment class to hedge against volatility. As a matter of fact, smart money has been chasing Commercial Real Estate with both HNIs and institutional capital allocating over 90% of their capital to CRE.

Innovation driving retail participation in CRE
Not many have the ability to source, acquire, and manage a high-quality commercial space with locked-in multi-year lease with a highly credible tenant. Thankfully, recent market innovations have brought this attractive asset class within the reach of retail investors, who can now generate a healthy passive income through such high-yielding investment properties.

These are primarily listed Real Estate Investment Trusts (REITs) and private Fractional Ownership platforms. Essentially, both provide access to retail investors and take away the hassle of acquisition and management.

Fractional Ownership: New Way of Investing
Fractional ownership, simply put, is a method of ownership where investors collectively put small sums of money to individually own a fraction of a high-value property. The unified purpose is to gain superior returns over time.

While such kind of holding structures in real estate are quite old, the innovation is about how new-age platforms are using technology to increase depth of its investor base, making the whole process of acquisition and management hassle-free, and leveraging professional expertise to differentiate. Investors can now invest in real estate with affordability and liquidity, which is opening up a whole new way of investing.

Fractional Ownership will emerge as a USD 5 billion market opportunity by 2030 and will find a much wider industry acceptance as investor awareness and process maturity of this nascent ecosystem grows. Real Estate developers should consider having fractional ownership products in their portfolio to keep pace with the times.
The real estate sector, especially the residential segment, which showed great resilience against the Covid pandemic to register a smart recovery, is now facing a double whammy. The long-drawn Ukraine-Russia war has led to a sharp increase in

Read more ...

Cities are a product of interactive life forms; they have multi-pronged dimensions involving people and other life forms, with dynamic interactions. Due to such dynamics and the complexity of ever-changing interactions, smart cities cannot be

Read more ...

Er. Vivek Abhyankar writes on the amazing architecture and planning, structural design, and performance, of many forts in India, along with their brief history, type, components, functioning, planning, and construction methodology

Read more ...

Real Estate and infrastructure are the major drivers of the economy with their significant contribution to the country’s GDP. As such, the construction finance is critical to ensure that real estate and infrastructure development

Read more ...

The Real Estate sector is on a recovery path, paving the way for sustainable growth in the coming years. With the receding pandemic, fast recovering economy, and a thriving job market, there are signs of promising times

Read more ...

The Kartarpur Corridor between India and Pakistan connects the historic gurdwaras of Dera Baba Nanak in Gurdaspur District of Punjab (India) with Gurdwara Darbar Sahib, Kartarpur, in the Narowal District of Punjab (Pakistan)

Read more ...

Authors Er. Vivek Abhyankar, Founder of SGAWings Civil Engineering Consultant and Advisor (OPC), Mumbai & Dr. N. Subramanian, an award-winning author, consultant, and researcher, based at Maryland, USA, present a brief review

Read more ...

The Modi government’s ambitious and aggressive ₹6 trillion National Monetisation Plan (NMP), high on intent with enabling framework, holds the promise of success, notwithstanding various challenges on

Read more ...

34-InfraDespite their relatively small markets, Bhutan and Maldives provide Indian construction companies a dynamic space for infra development with an appreciable degree of social and cultural familiarity

Read more ...

Very few places in our world are more educational than museums. Museums are storehouses of knowledge and help us understand our world better. As institutions at the heart of society, museums have the power to define

Read more ...

Notwithstanding some bright spots, the flagship Smart Cities Mission (SCM), which marked its 6th anniversary on June 25, is yet to live up to its tall promises. Their sub-optimal performance, precipitated by

Read more ...

Indian construction companies and equipment manufacturers should explore opportunities outside the country as India has the potential to become a global manufacturing hub. Reports Saeeduddin Faridi

Read more ...

TDR policy faces many constraints and challenges and several reformative steps are needed at the policy level to bring momentum to it. Though the concept of TDR (Transferable Development Rights), largely aimed

Read more ...

With the launch of Digital Roof 4.0 (DR4.0), a new day has dawned in the Indian construction sector. Digital Roof 4.0 is a multi-faceted engineering and management company set up with the avowed intention

Read more ...

Focusing on infrastructure as a key driver of economic growth, the government is embarking on a massive PSEs asset monetisation programme as part of Infrastructure Vision 2025. This ambitious programme is meant

Read more ...

Cities all over the world are rapidly changing and expanding, and proper urban planning is now more important than ever before. Singapore 'urban model' is a classic example of highly targeted urban planning which has transformed Singapore's

Read more ...

In terms of its contribution to the global economy, the construction industry is at the forefront with a staggering annual share of 11- 12 trillion dollars. It is a large employer with more than 300 million people

Read more ...

For years, construction has lagged behind other industries regarding technological advancement, disruption and digital automation. Finally, this is starting to change. The reducing cost of digital enablement

Read more ...

At a time when India is undergoing rapid urbanisation, integrating technologies like AI and IoT will help in faster and better planning and designing of smart, tech-enabled cities. Technology is transforming the real

Read more ...

×
Sign-up for Free Subscription
'India Construction Week'
Weekly e-Newsletter on Construction Industry
Get the latest news, product launches, projects announced / awarded, government policies, investments, and expert views.