Among the endless alternatives of investing money, ownership of property is renowned as a reliable, long-term investment option. It offers good returns for investment while generating wealth through appreciation of assets, land shortages, and high demand. Asset ownership contributes to income and wealth generation. However, the ownership of assets has radically transformed over the last several years as the business models have been changing constantly. One of the most important examples could include the fact that timeshares are not the only part of the ownership of the investor.
Fractional property ownership is a novel way to obtain a property that you have been looking for Here’s everything you need to know about fractional ownership.
Understanding fractional ownership
Because of the high price, many Indians find it difficult to invest in commercial property. Most of them focus primarily on the residential real estate industry. However, access to commercial real estate (CRE) will become easier for investors with the advent of fractional ownership.
Imagine there is a Rs 50 crore premium commercial building, generating good cash flow, that has been leased by an institutional tenant. That is only possible because of the concept of fractional ownership. It allows the asset value of Rs 50 to be divided into fractions or shares representing the equity and the debt of the underlying asset.
Fractional ownership has been prevalent in western countries for over a decade and is now gaining traction in India. Commercial property investments have long been a playground to institutional investors; however, as a new investment channel in India, fractional ownership is emerging, enabling new-age investors to be part of new prospects at a fraction of the previous cost.
Fractional ownership and commercial real estate
The CRE market is predicted to increase by 13 percent to 16 percent in the next five years as fractional owners of commercial real estate are constantly increasing in India. The fact that the government supports increased demand in the coming years for office space, growth in the number of major institutional investors, and substantial foreign investment in numerous trade projects could be a part of this expected boom. These are all aspects that contribute to a strong capital appreciation potential.
Commercial Real Estate typically consists of Grade A properties that are frequently leased by Multinational Corporations, Banks, Warehouses, Factories, or Information Technology establishments with large budgets. Unlike residential tenants, such organizations do not typically leave the premises on short notice, leaving the property owner in a bind. A rental lease for allocating commercial space, on the other hand, is for three years or more. As a result, one significant advantage of renting property to commercial organizations is that they pay the rent on time and design the entire area to their specifications.
Furthermore, because they use the property as an office, they devote all of their efforts to keeping the space organized and are more likely to renew their lease rather than looking for a new location. The fact that a bank account has a monthly deposit and that the market value of an estate has constantly risen leads many stakeholders to invest in fractional Commercial Real Estate shares.
Fractional ownership and its impact on liquidity in real estate
Liquidity refers to the process of converting an asset into cash without affecting its market price. When it comes to investing, liquidity is a crucial concept that benefits both companies and investors. Cash is technically the most liquid asset because currency in any form can be used in transactions. Rare metals are generally considered more liquid, whereas commercial properties are considered illiquid assets.
Commercial Real Estate can now be easily liquidated by the part-owner thanks to the introduction of fractional ownership. For instance, if a party, having a fractional investment in a property, wants to sell its half, they can transfer their part of the property rapidly to another ready investor. Be aware though, that owning the property alone does not allow the owner to change between assets with the same level of flexibility.
Important steps to invest in fractional ownership
Investing in a commercial property is like a chance to balance diverse product portfolios. CRE has a tangible underlying asset, the potential to conserve money and create income, as opposed to the volatile stock market or fixed deposits with low returns. Subdivision investment demands substantial experience that every new-age investor cannot expect. Some techniques can assist individuals to make up for the gap of knowledge and lack of experience.
In India, fractional ownership is still in its early stages, with only a few companies like Assetmonk currently offering the opportunity to invest in fractional properties. The majority of them are start-ups led by experienced investors. The right strategy is to conduct extensive market research and identify the company with experienced founders and a strong network of investors who can provide the best investment opportunity. To make this easier for investors, Assetmonk has expert resources.
Obtain the best deal
While anyone can search for a high-yielding property online, determining the property’s correct price is not easy. This is one of the most important steps, and experience is essential. Finding the property and accurately estimating its value is a completely different game that only an experienced investor can play. It is critical to ensure that the best price for the deal is obtained so that the investor does not overpay.
Look for solutions that are centered on the customer
Exit points for fractional ownership in the CRE segment or any asset must be planned. Experienced investment or prop-tech firms are founded on the long-term goal of generating capital gains, rather than just a high yield. If an investor makes a wise decision to purchase a fractional property, the investor will be able to maximize capital gains on resale.
Fractional property ownership can create excellent possibilities for wealth, portfolio, and passive income generation. Since many Indians are new to this concept and unskilled, partnerships with new age and technologically capable platforms will make the whole process easier and comfortable. Assetmonk is one of India’s fastest-growing real estate platforms, with opportunities for real estate investment in major cities like Hyderabad, Chennai, and Bangalore. We offer real estate properties with investment opportunities that are carefully listed after conducting strict and professional due diligence. To start your investment with us today, visit us now!
Fractional Ownership FAQ’s:
A fractional ownership structure is one in which a group of investors pools their funds to purchase a property. They both have passive ownership of a valuable asset. This approach reduces the financial burden on a single investor to own property while also allowing the investor to earn returns on his or her investment.
The term “fractional ownership” refers to the joint ownership of an asset by more than one individual or legal entity. It can be viewed as a structured syndication method in which several shareholders own shares in a specific company, which owns an asset.
Some benefits of fractional ownership include lower capital, higher liquidity, hedge against inflation, higher return on investment, and portfolio diversification.
If you don’t have a lot of money to invest, fractional shares are an easy way to build a well-diversified portfolio. If you want to invest in individual stocks or ETF-based index funds, fractional shares are an excellent choice.