The majority of Gen X (those born between 1965 and 1980) came from middle-class homes that battled to make ends meet. They began by completing their family’s obligations, saving for their children’s education, and eventually purchasing a residential property so that their children could live in a rent-free environment. This, however, limited them to solely residential markets, which aided them in purchasing a home.
When they reach or cross their 30s, the next generation, millennials (born between 1980 and 1996), who studied hard and lived in their own house, contemplate investing in real estate. Large down payments and expensive EMIs, on the other hand, cut years off their lives. Finally, when they own a home, they must pay for property maintenance as well as other taxes. In practice, it made it difficult for millennials to invest in a commercial property that they had been coveting for years due to its hefty price tag.
What if they could own a piece of their dream home that could be leased to a reputable MNC tenant and earn a steady stream of income?
The commercial real estate (CRE) segment’s manner of ownership has changed drastically throughout time. Fractional ownership, like timeshares and owning a portion of a high-priced stock, has rebranded the traditional CRE industry and emerged as a new means of investing for millennials.
Benefits of fractional investment offered by start-ups
i. Possibility of owning more
Fractional ownership allows you to own a share of one or more properties – typically a resort condo or holiday home – in desirable locations that would otherwise be out of reach. You may enjoy all of the facilities of a high-end, resort-style condominium property without breaking the bank because the costs are shared by numerous owners.
ii. Ownership is deeded
Fractional ownership, unlike a resort timeshare, offers you a deed to a portion of the property, often known as a fractional interest. This means that the value of your part in the property rises or falls in tandem with the real estate value of the property. Any value growth is shared equally among all fractional owners and becomes gained equity.
iii. Rights to use
Unlike short-term holiday rentals, you own genuine property with a fractional ownership property, allowing you to use the vacation home according to your share. If you possess one-fourth of a stake in a property, for example, you have the right to utilize it for one-fourth of the year – or three months. You can use your portion of the fractional ownership agreement to enjoy the home to the fullest degree possible.
iv. Costs of repair and maintenance are shared
When you use the fractional ownership model to own a vacation property, you’re just responsible for a percentage of the upkeep and maintenance. Taxes, HOA fees, maintenance bills, landscaping, utilities, property management firms, and other shared ownership costs are all covered.
v. Reduced upkeep and maintenance costs
The majority of fractional ownership agreements contain long-term property management clauses, with owners determining how to address any difficulties that emerge as a group.
Benefits of fractional ownership in CRE investments
The COVID-19 pandemic has caused a shift in how real estate investors think. Several retail investors lost a considerable amount of money as a result of the pandemic’s economic slump. A shift has occurred, with investors increasingly preferring real estate as a safe investment instrument. However, not everyone has the huge sums of money required to make such investments. A pandemic-proof and trustworthy investment choice was required, as well as one that provided liquid returns in addition to long-term capital appreciation.
Commercial real estate fractional ownership proved to be the solution. The lucrative returns of commercial real estate are now available to the typical retail investor through this investment, which offers a rare mix of low-risk and high returns. This allows such investors to diversify their investment portfolios while also generating a second stream of income.
Despite the fact that the Indian market is still in its early stages, it is predicted to be worth more than USD 5 billion by 2020. Fractional ownership is expected to be the future of the Indian real estate market since it overcomes a major problem with commercial property: the high entry barrier of required investment.
Consider a Rs 30 crore office space, for example. Only notable Real Estate Investment Trusts (REITs) or High Net Individuals will be able to make such a large investment now (HNIs). However, with fractional ownership, a person can invest as little as Rs 10 lakh and become a part-owner of a property while still earning rental income.
The convenience and ease of fractional ownership go hand in hand with the growth of India’s commercial real estate industry. Commercial real estate, unlike the rest of the financial industry, only had a little downturn during the countrywide shutdown and recovered quickly in the third quarter.
Commercial prices are likely to rise, albeit with a minor hiccup owing to the second COVID-19 wave. This will be a great opportunity for investors to go into fractional real estate ownership.
A significant advantage of fractional ownership is that renters of residential properties typically vacate the property regularly, resulting in a loss of rental income while a new tenant is sought. Commercial leases, on the other hand, are usually for three years or longer, ensuring a steady stream of rental money.
When it comes to Grade-A commercial properties, their tenants are well-known and well-established businesses that rarely default on their rent payments, as is the case with residential homes. Furthermore, corporate tenants devote a significant amount of time and effort to customizing the interior of office space to meet their needs, and they are inclined to renew their leases.
WelathTech – An Enabler of fractional ownership
Millennials have grown up as part of a visually-driven generation that has witnessed the world’s transformation into a technologically led one. They are tech-savvy and are continuously looking for new methods to make money. Millennials’ access to commercial real estate has changed as a result of the digital transformation of every corporate sector.
New-age WealthTech platforms have emerged to facilitate fractional ownership by offering fractional owners easy access, transparency, and asset management solutions. WealthTech is backed by industry specialists with experience in CRE and patented processes to be dependable in the sector. It also emphasizes a careful investment structuring procedure to safeguard the interests of fractional owners.
WealthTech in fractional ownership has produced outstanding outcomes in securing investments that are adapted to the demands of investors. Furthermore, the most dependable of them take advantage of technology’s potential to diversify an investor’s portfolio across numerous asset classes and locales. Apart from that, it simplifies the management of tax deductions for investors, removing time-consuming and unpleasant activities from the owners’ end.
Investing through WealthTech Platforms startups like Assetmonk can be beneficial. Assetmonk offers quality products with quality services at the most reasonable rates. Fractional ownership is offered by Assetmonk in top Indian cities and thus the return on these investments is also higher. Apart from the benefits of lower capital requirements, Assetmonk also offers the benefits of property management and maintenance. On investing with Assetmonk, you need not worry about the collection of rent, tenant screening, maintenance cost, market evaluation, due diligence, etc. as all these are taken care of with great caution by Team Assetmonk.
Is fractional Ownership safe and how is it regulated in India
Fractional Ownership in Indian real estate is a novel idea, and it is available through a regulated private placement. However, we have implemented all of the best options available in the country, such as using Trusteeship services with a SEBI registered trustee for investor protection, and deploying our in-house technology to comply with the strictest KYC, AML, and FEMA norms, all of which are authenticated using RBI approved tec. We went above and above to develop an ecosystem with a transparent, trustworthy, and reliable framework in place to provide the greatest user experience possible.
Since the benefits of fractional property ownership are so appealing, many people who could easily afford a home are opting for it instead. Even more surprising, many people who currently own a vacation house are selling fractional interests in it to reduce their costs and administrative burden while continuing to utilize the property as frequently as before.
Fractional ownership agreements are frequently organized by startups today. Typically, they are established by startups who furnish the property, prepare the legal framework and documentation, and then sell fractional interests. Contrary to popular belief, groups of strangers that join together through these bundled products are often better at managing shared property than groups of friends or family members. Good guidance, careful planning, and a complete legal agreement are essential.