For anyone looking for an investment, the first question is ‘how do I get the maximum pay-off on my money?’ One way to ensure this is to look for an asset that will grow your wealth in more than one way. This is one of the biggest advantages of fractional ownership of commercial property, which can provide three ways to earn more and increase your wealth — rental returns, capital appreciation, and resale.

Through fractional investment, an investor can pool their funds together with other interested buyers and share the ownership of property, thereby dividing the cost and the risk. This is an especially convenient format for investing in premium commercial real estate, which can be too expensive for one buyer to purchase, but provides the highest returns — enough to be shared for a tidy profit among a group of investors.

High rental returns

Commercial property in India has been experiencing a boom in the last couple of years — yes, even during the pandemic — as Grade A property such as premium office spaces get absorbed rapidly by the nation’s thriving outsourcing sector. As such, Grade A commercial realty offers a high rental yield to the tunes of 6-10 per cent. This means an investment of Rs 10 lakh could fetch you anywhere between Rs 60,000 and Rs 1 lakh per annum in rent alone. These kinds of returns are unmatched by most investment formats, except perhaps mutual funds and stocks, which unfortunately are also riskier. On the other hand, the commercial property provides stable rental returns because of the nature of the tenants, who are usually big MNCs, banks, IT offices, or companies with deep pockets. Such tenants tend to take long leases and pay the rent on time or in advance. Also, the rental payments go straight to the investors’ bank account, and there is no need to wait for a lock-in period to access this money, as is the case with mutual funds or bank deposits and bonds.

Strong capital appreciation

A big advantage to the property is that it can provide dual-income through regular rental income, as well as long-term earnings from capital appreciation. Both go hand-in-hand too; as the property value continues to appreciate, its rental rates also rise as well. Commercial real estate has given 16 per cent CAGR (Compound Annual Growth Rate) over the past five years, and 15.3 per cent CAGR over 10 years. CAGR is used as a measure of the average yearly growth of investments. This is a higher investment growth rate than what was witnessed by both gold and the stock market in the past decade. Capital appreciation at such healthy rates is possible with the commercial property because (a) it is a tangle, physical asset and not a paper asset, and (b) it will always be in demand as long as the property is chosen smartly and maintained well. If this sounds like too much effort though, investors can choose to buy a property through a reputed fractional ownership platform that will do all the due diligence, select the best properties, gather interested investors together, and even manage and maintain the property after purchase. Opting to invest through such a platform will also make it easier for investors to make the most of their investment for the final time when they decide to resell their holding in the property.

Liquidity and full value with resale

The beauty of fractional ownership, especially when done through a fractional property platform, is that individual investors can avail of the earnings as long as they did like, and then just as easily cash out of their investment by reselling just their share. This means, they wouldn’t have to wait for all the other investors to agree to sell the whole property, unlike say, the joint ownership of a house, where both owners would have to agree to sell the house. Investors who invest through a fractional real estate platform can simply log in to the dashboard on the same platform and search for interested buyers, and also complete the transaction there. This ensures there is far more liquidity than the property would normally provide.

It is for these reasons that fractional ownership of commercial real estate is very popular in the US and Europe, and now also picking up pace in India. It is a rare asset that allows investors to make millions without having to invest millions. However, to truly optimise such an investment, it is imperative to do due diligence before buying property, vis a vis location, local rental yields, forecasted capital growth, local zoning laws, and other such factors. Or, for the uninitiated layperson, it will also pay to invest through a reputed fractional real estate company that can assure maximum returns with minimum effort.

The author is a real estate tech entrepreneur and founder of hBits

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