As we step into financial year (FY) 2025, the anticipation for what lies ahead is palpable. In the last couple of years, the real estate industry witnessed a vibrant and sturdy performance characterised by several developments. The worldwide bounce back from the economic downturn caused by the pandemic played a role in heightened interest in residential properties, buoyed by steady interest rates and a preference for larger living spaces.
In light of potential market shifts, investors must remain vigilant and prepared for any unforeseen developments in the new fiscal year. Following are some avenues investors can explore to mitigate unnecessary risks in the stock market.
The Importance of Diversification
Given the current disconnected state of the bull market from real economic indicators, investors are rightfully concerned about its sustainability. This underscores the importance of diversifying investments. Diversification helps shield your portfolio from being entirely wiped out in the event of a market downturn, as it spreads risks across different asset classes. While equity holdings may be impacted by market fluctuations, assets like fixed deposits (FDs), bonds, and real estate tend to remain relatively stable.
Secure Investment Alternatives
For diversification in 2025, investors may consider allocating funds to assets such as real estate, bonds, Public Provident Fund (PPF), gold, and bank deposits. However, it's crucial to understand the characteristics and potential returns of each asset class. For instance, rental yields of commercial properties offer average returns of 8-11%, which is considerably more than the current rental yields of residential properties, ranging from 1.5% to 3.5%. 2-3 percent, which are comparatively low on a global scale.
Government bonds and PPF offer annual returns ranging from 6%-8% with PPF standing at 7.1% per annum to be precise, slightly above the inflation rate. Bank deposits yield nominal returns like for 5-year deposits, the average interest rate is about 6.75%, which after factoring in tax deductions on interest income, may fall below the inflation rate. While gold serves as a safe haven for wealth preservation, it may not offer substantial growth potential for portfolios.
Fractional Ownership As A Strategic Approach
Fractional ownership of commercial properties can emerge as an attractive option for investors seeking both security and favourable returns which enables investors to purchase a small portion of a real estate asset, usually requiring a minimum investment of ₹10 lakh. Usually, investments in commercial real estate (CRE) through fractional ownership commence at around ₹15-25 lakhs.
With yields ranging from 8% to 12% and the Internal Rate of Return (IRR) varying between 13% to 17%, incorporating higher rental yields and significant capital appreciation and rent escalation clauses of 15% every three years, fractional ownership presents a compelling investment opportunity. Forward-thinking investors can take advantage of this strategic opportunity to broaden their portfolios by accessing high-potential commercial properties with affordable ticket sizes.
Typically, fractional property investment platforms exclusively look for commercial properties, residential land, holiday homes and value investment in real-estate guaranteeing good returns. Rigorous due diligence processes, including assessments of builder reputation, location of asset, and asset quality, bolster the safety of value investments. Moreover, partnerships with top developers and local brokers facilitate access to premier Grade A assets across major cities, further enhancing investment appeal.
In conclusion, fractional ownership presents a compelling investment avenue for both seasoned investors seeking portfolio diversification and newcomers looking to break into the commercial real estate market and value assets in real-estate. This offers diversification benefits, wealth accumulation potential, and resilience against market fluctuations.
Moreover, real-estate market is all set to essentially experience a boost as more and more companies adjust to hybrid work arrangements, highlighting the significance of adaptable office environments, i.e. ultimately fuelling this segment of real estate in the near future.
—The author, Aankush Ahuja, is CEO and Founder of FOIP, one of the fractional property investment platforms in India. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Mar 19, 2024 1:27 PM IST
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