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Obvious and true, real estate has always been a key part of investment portfolios around the world because of its stability and growth potential. And investors everywhere, from the busy markets in America to the fast-growing regions in Asia, consider it a trusted asset class that has proved itself, time and again.
In America, for instance, wealthy Americans are now focusing on diversification, long-term goals, and making a lasting impact with their wealth. So, here’s what makes up their portfolios.
High-Growth Avenues Identified by Wealthy Investors Aged 21 to 43
Top Investment Picks for Wealthy Investors Over 44
Did you spot the commonality there? From the above data, it’s clear that real estate is a common ground for both young and older American investors. This isn’t surprising since real estate is known to multiply wealth when leveraged wisely.
The above trend is from Gallup’s annual Economy and Personal Finance survey, a global analytics and advisory firm. The firm asked Americans to choose among the popular asset classes and real estate has been a constant top pick among Americans from all income levels.
Now let’s talk about the elephant in the room.
There’s a stark difference in how real estate investments are approached in India compared to other matured markets. To draw an easy parallel, let’s take a look at how modern American investors strategize as we’re quick to adopt Western practices in all major aspects.
American Approach: Young Americans are exploring various types of real estate investments because they know that wealth growth is driven by commercial real estate.
They’re not just buying residential properties; they’re also into fractional ownership and REITs to add hard-to-afford commercial properties to their portfolio. Some smart investors start with the fractional ownership model to understand the details of being a landlord [be it asset management, tenancy management, etc] and this diversification within real estate helps them spread their risk and tap into different revenue streams.
According to the latest survey by Knight Frank, worldwide wealthy private investors remained the most active buyers in commercial real estate in 2023, taking a record 49% share of the $698 billion global commercial real estate market. These individuals show a strong preference for offices, industrial and logistics, and living sectors, capitalizing on opportunities created by reduced competition and the high operational efficiency of these assets.
Indian Approach: Most retail Indian investors are still apprehensive about alternative investment avenues like fractional ownership and traditionally stick to residential real estate.
Let’s say this is due to a lack of right awareness or the general Indian attitude of “let’s talk to someone who has done it and see what I understand”. Now, while residential assets have been a reliable investment for many, holding that alone limits the potential for diversification and investors miss out on higher returns that other real estate sectors can offer like office spaces, co-living properties, etc
High-net-worth individuals in India are following this trend, investing 25% of their wealth in commercial real estate. While residential real estate typically yields gross rental returns of 2-4% per annum of the property’s market value, this figure jumps to around 6-10% in the case of commercial property.
Something to think about, isn’t it?
That said, some savvy Indian retail investors are starting to see the benefits of moving beyond traditional real estate. Fractional ownership of commercial properties is catching the eye of some forward-thinking individuals and SEBI’s efforts to make these investments safer have led to a gradual increase in retail participation. Assetmonk has been the key player, helping such keen investors access high-yielding commercial real estate assets via fractional ownership without geographical limitations.
What’s causing this shift? The right advice from experienced investors who have wide exposure to different markets, self-research in the changing investment landscape, and the drive to achieve financial success through avenues that are making inaccessible assets available to them are strong reasons some investors are exploring new-age investments.
It’s high time!
Now despite the progress where a handful of investors are actively exploring alternative real estate investments, this group is still quite small compared to the huge number of active retail investors in India. More retail investors need to understand and take advantage of alternative investments. By doing so, they can diversify their portfolios with in-demand commercial properties without the limitation of large capital requirements and achieve more stable and higher returns.
