Like the American Dream, the Indian Dream symbolises an aspirational future comprising life goals like marriage, home ownership, the birth of children, and retirement. Smart financial planning can easily pave the way to each of these goals and simplify your life journey.
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When it comes to financial planning, there are thousands of investment options available in the market. One of the best is fractional investment in commercial property. It is a novel option that allows you to invest in a piece of commercial property at an affordable ticket size. A unique mix of safety and good returns, it can help you build wealth, meet your life goals, and live the Indian Dream.
What is fractional ownership?
Given the high cost of commercial property, the commercial real estate market has traditionally been dominated by big firms and high net-worth individuals. Fractional investment in commercial property aims to break this mould by making commercial property investing affordable to retail investors. With rental yields of 8-10 percent per annum, capital appreciation of 5-10 percent annually, and rent escalation of 15 percent every three years, fractional investment is one of the most attractive options currently in the market.
Marriage expenses
Marriages can run up quite a bill so it is important to be financially prepared. Traditionally, the onus is on the parents to finance their child’s wedding. One way to do this is through a personal loan, but it is best avoided. With interest rates starting at 10 percent, a loan of Rs 35 lakhs payable over seven years could cause you to part with as much as 13.80 lakh as interest!
Your family could also invest in FDs, mutual funds, shares, PPF etc. This will allow them to avoid a loan. But each of these options comes with its own share of drawbacks which one should be aware of. While shares and mutual funds are highly volatile, FDs and PPF give comparatively low returns. PPF also comes with an investment cap of Rs 1.5 lakh annually, limiting the maturity amount.
Fractional ownership is a much better option. Your parents could invest Rs 25 lakh for five years to get a total of Rs 41.90 lakh in rental income and capital gains (assuming a rental yield and capital appreciation rate of 8 percent and 5 percent respectively) to comfortably fund your wedding.
Home purchase
Let’s assume you are planning to buy a house worth Rs 50 lakhs. You already have a corpus of Rs 25 lakh, while planning to fund the rest with a home loan. A loan of Rs 25 lakh, for 10 years, at 7 percent interest, would require you to pay Rs 9.83 lakhs as interest which is no small amount.
By investing Rs 25 lakhs in fractional ownership for 10 years, you can earn a total of Rs 60.72 lakh. This includes Rs 20 lakhs as rental income (at 8 percent rental yield) and Rs 15.72 lakhs as capital appreciation (at 5 percent capital gain). What’s more, you will save nearly Rs 10 lakhs as interest on the home loan you were planning to take!
Children’s education
Rising at a rate of 10-12 percent per annum, children’s education is one of the biggest expenses for a family today. For example, an engineering degree which used to cost Rs 6 lakh in 2015, will cost you Rs 25 lakh by 2030; while an MBA degree, costing Rs 16 lakh in 2015, will come to Rs 67 lakh in 2030.
Now let’s say you take an education loan. Assuming 6.5 percent interest on the loan, a principal amount of Rs 50 lakhs for 10 years would require you to pay Rs 18.12 lakhs as interest.
A better alternative is to invest in FDs, mutual funds, shares, PPF etc. but they have their own pitfalls. Fractional ownership makes better sense. An investment of Rs 25 lakhs for 10 years will provide a cumulative return of 52.93 lakh at 8 percent rental yield and 5 percent capital gains, to secure your child’s future.
Retirement planning
Fractional ownership should be an essential part of every retirement portfolio.
“Senior citizens can invest up to 25 percent of their savings on fractional property to get regular income and benefit from capital gains. Properties listed on fractional ownership platforms are rigorously vetted by experts to minimise any risk to the investment,” says Ankush Ahuja, Director, of Business Development and Investment - hBits, one of the leading fractional investment platforms in the country.
Providing 13-20 percent IRR to investors, fractional property investment gives you high returns while providing stability at the same time. This makes it a suitable asset to invest in for your sunset years.
The author, Aankush Ahuja, is Director of Business Development and Investments at hBits. The views expressed are personal
(Edited by : Anshul)
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