View | Fractional properties: The new face of stability for new-age investors

In recent years, crypto transactions have attracted a lot of fanfare, with the spectacular growth of NFTs, yield farming, Layer-1 and Layer-2 coins. Despite the hoopla, the crypto market remains at a nascent stage, which is why it remains a high-risk proposition.

"What about mutual funds?" you may ask. While mutual funds have been a good alternative, the recent stock market correction due to skyrocketing oil prices, looming hikes in borrowing rates and Russia’s invasion of Ukraine are reminders of how vulnerable it can be.

The advent of fractional ownership has enabled new-age investors to enter the market of commercial real estate (CRE), which was earlier dominated by HNIs and NRIs.

Suppose you want to invest in a commercial property worth Rs 25 crore, but you don't have sufficient funds to do so. The fractional ownership model allows you to invest a fraction of that amount, let’s say, Rs 25 lakh, and own 1/12th of that property.

Simply put, fractional ownership is a set-up that allows a group of like-minded investors to jointly own a CRE property. It ensures less risk exposure, reduced cost burden, long-term capital appreciation, and steady monthly rental income.

Investors expected certain changes in the traditional model of CRE investment, such as easier access to opportunities, enhanced transparency, data symmetry, and streamlined processes. And since fractional ownership has managed to crease out these wrinkles in India, it is replicating its success in the US, Europe and Japan.

The proof is in the data. According to a survey, fractional ownership will gain rapid adoption in Bengaluru, Pune, and Mumbai, with chartered accountants, lawyers, IT professionals and doctors showing massive interest.

Our investors' profiles indicate similar findings: more than 70% of our investors are from MNCs and at senior level management engaged in these professions only. The data are a quick snapshot of fractional ownership's growing popularity in the CRE sector.

The future outlook of commercial properties – especially office spaces – is upbeat, which means the demand for fractional ownership will also grow hand-in-glove.

Double-engine growth in the CRE space

Meanwhile, industry experts believe CRE will take off from the second half of 2022, which means we are sitting on the cusp of high capital appreciation and steady rental income. As an aside, CRE’s average rental income (at roughly 9 percent per annum) is more than three times higher than their residential counterparts.

To summarise, an investment option that delivers high returns at a reduced cost burden is bound to be lucrative for average investors, especially new-age investors with new-age goals. Furthermore, its increasing popularity among small investors is a testament to how painless it has become to enter the CRE space.