Real estate and equity have long been the primary avenues for investment. Recently, real estate is experiencing an upturn due to economic growth and rapid urbanisation. Traditionally, the realm of real estate investment for retail investors has been limited to residential properties or small commercial spaces, such as individual shops.
However, the landscape is shifting dramatically with the advent of fractional ownership. This allows access to institutional-grade properties that were once the exclusive domain of the very wealthy or institutional investors. The democratisation of commercial real estate (CRE) not only marks a significant evolution in the investment opportunities available to Indian investors but also offers rental returns that are approximately 3-4 times better than those of residential properties. Additionally, it provides higher capital appreciation, with targeted returns in the range of 11-18% IRR overall.
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The democratisation of commercial real estate
Historically, investing in A-grade commercial properties in India was a possibility only for the affluent or large-scale institutional investors due to the high capital requirements and complex management needs. This scenario is changing with fractional ownership platforms that have opened the gates to high-value, income-generating real estate. By pooling multiple investors together, these investment platforms allow individuals to invest in portions of commercial properties, making it less capital intensive and more accessible to a broader audience.
Additionally, these platforms offer the convenience of handling all compliance-related work and managing tenants, which can be a cumbersome process for individuals dealing with commercial property. This added advantage not only simplifies ownership but also enhances the potential for earning with convenience. With enhanced transparency and the guidance of reliable industry experts, investors can now engage in commercial real estate investments with greater confidence and ease.
Also Read: Income tax strategies for real estate investors: Maximising deductions and minimising liabilities
Regulatory evolution and rise of SM REITs
The growing interest in fractional ownership and its potential has caught the attention of the Securities and Exchange Board of India (SEBI), prompting the establishment of a regulatory framework to protect investor interests. Currently, the industry boasts an Asset Under Management (AUM) of INR 4,000 Crore with a few key players dominating the market.
To prosper the growing sector and keep investors safeguarded, SEBI has mandated a transition to Small and Medium Real Estate Investment Trusts (SM REITs) within the next 6-12 months. Additionally, the minimum investment amount has been lowered to 10 lakhs from the previous 25 lakhs, making it more accessible for investors. This shift aims to standardise practices across platforms, increase disclosure requirements, and empower investors with greater rights, thereby fostering a more transparent, accessible, and regulated market with higher liquidity.
Analysing investment opportunities
Investors looking to navigate this new terrain will benefit from a visual guide that explains how these fractional ownership platforms work and what are the key factors in any fractional ownership investments opportunity.
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Way forward and investor empowerment
According to a recent report by JLL, the Indian fractional ownership market is expected to undergo substantial growth, potentially reaching over $5 billion in AUM by 2030. This projection underscores the significant expansion within the sector and highlights the bright prospects for SM REITs. As the market evolves, regulatory oversight will likely enhance its attractiveness by adding layers of security and transparency.
Fractional ownership in commercial real estate is emerging as a compelling investment avenue. With the introduction of SM REITs, this sector is poised to become more structured and accessible, offering substantial opportunities for investors. As the market continues to develop and regulatory frameworks are further enhanced, investors have a prime opportunity to understand and capitalise on this innovative investment format.
The journey into commercial real estate is now open to a broader audience, providing a lucrative alternative to traditional investment options like stocks and bonds. As an investor, it is an opportune time to explore, understand, and invest in this burgeoning sector.
Aryaman Vir, CEO, WiseX
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Published: 06 May 2024, 12:23 PM IST
