Fractional Investment in Commercial real estate: The Future ahead

The recent pandemic has changed the functioning of the overall economy. And if we talk about the real estate industry, the pandemic has surely impacted us in a big way. While many of us are busy talking about the dark side of the change, let me talk about the brighter side in context with commercial real estate market. The biggest change that has resulted and helped the market players in a big way is ‘Fractional Investment.’ As the name suggests, it’s an investment pattern/scheme that works in favour of the players.

A fractional investment is a portion of an equity stock that is less than one full share. In the competitive market, mergers or acquisitions create fractional shares, as companies combine new common stock using a predetermined ratio. Capital gains, dollar-cost averaging, and dividend reinvestment plans often leave the investor with fractional shares.

If we talk about the concept of fractional ownership in the real estate sector, it has been prevalent in the US and Europe for a decade and is now picking up in India. If experts are to be believed, the pandemic has given rise to the trend and seems like by 2025, the new trend will be all up in the market.

It is a new way to invest in the commercial real estate market. It enables you to buy a portion of a property and with this, you get all the benefits of owning a property without any ongoing hassles and chaos of upfront expenditure.

As we dive deep down the concept, it becomes clear that this model of investment is very much relevant for prime assets in the commercial real estate (CRE), where the stakes are really high and it is impossible for a single investor to invest in all.

As per Indian market scenario, it is one of the best ways to invest in the commercial real-estate market, where you can invest in fractions and earn a monthly rental and automatically build a long term entity of wealth.

How it works in Indian market?

If we look at the market conditions, once it flourishes well in Indian real estate market, one can go ahead with it, where it is combined ownership of a single asset by multiple investors. In general, it is conducted by the high net worth people, as it calls for higher investment in the commercial market. While this is said and done, there are players who are establishing in the Indian market, where a potential investor can simply sign up on the virtual platform and invest in any current or ongoing opportunities that are listed by the hosting player.

 What to take care while investing?

It is suggested to keep a check on a resale market rate before investing in fraction. And once you are satisfied with the rates and details, and then go ahead. When you invest and the property is fully funded, you as an investor will start receiving shares of the holding company and also start earning a monthly income out of it.

What are the benefits of Fractional Investment in commercial real estate market?

The biggest advantage is that it is an ideal way to invest in premium CRE. The core model of this scheme helps you invest in fractions of a premium commercial property that further enables you to earn a monthly rental and you end-up building long term wealth. Apart from regular rental income and long terms appreciation of a fixed asset, the model also helps you diversify your investment across multiple properties and prime locations.

As per industry experts, another key benefit of this model is there is no lock-in period and you can sell whenever you want through our resale platform.

What is the current scenario?

While it is still in the early phase in India, COVID-19 has further pushed down the market. However, the change is in the air and slowly things are picking up. It is expected that in the coming 4 months, things will change and there will be a lucrative market for the model in India, as it involves minimum risk.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of HelloPost.)

Contributed by Pankaj Kr. Jain, Director, KW Group