Commercial Real Estate: Fractional ownership - How it is more profitable for upcoming investors | Expert explains
The concept simply refers to a set-up wherein a group of like minded people own a commercial property together and become fractional owners.
The mode of ownership in the Commercial Real Estate (CRE) segment has evolved dramatically over the years. Just like timeshares and owning a fraction of a high-priced share, fractional ownership has rebranded the conventional CRE sector and emerged as a new way of investment for millennials. The concept simply refers to a set-up wherein a group of like minded people own a commercial property together and become fractional owners. Varun Mohan, CEO and Founder at Definite, explains how is fractional ownership in Commercial Real Estate is more profitable in today's time for upcoming investors:-
Varun Mohan says, "The majority of individuals from Gen X (born between 1965 to 1980) belonged to middle-class families who struggled hard to make a living. They started with meeting their family responsibilities, saving for their children’s education and ended up buying a residential property to make their children live a rent-free life. However, this made them restricted to only residential markets which helped them in owning a house."
"The next generation i.e. millennials (born between 1980 to 1996) who studied well and lived in their own house think of investing in real estate when they reach or cross their 30s. However, huge down payments and the hefty amount that goes into EMIs take years of their life. Finally, when they own a property, they are under expenses of property maintenance and other taxes. Practically, it made it difficult for millennials to invest in a commercial property they have been eyeing for years because of its highticket price," he added.
Mohan explains, "However, what if they could own a fraction of their dream property that could be leased to a verified MNC tenant and generate good cash flow."
Decording Fractional Ownership in CRE, Mohan said, "Fractional ownership that is gradually gaining popularity in India is poised to reduce the financial burden on a single investor or owner of the property. This approach of purchasing an asset simply divides the expensive cost into multiple fractions allowing millennials to participate in new opportunities at a fraction of the cost previously required.
"For instance, a premium commercial building that is leased to a tenant can cost INR 50 crore for an owner/investor. A working professional with an investment amount of INR 25 Lakh can fulfill his /her dream to purchase that property through fractional ownership and earn the similar benefits such as high yield in the range of 8-12%, while the management of the asset is being taken care by an International repute agency and all the activities with the help of technology and AI are done at the click of the button," Mohan added.
"Traditionally, investing in the CRE sector was considered the choice of wealthy and experienced investors. However, with the entry of new-age PropTech platforms, millennials can come together to purchase an asset, enjoy the yield, sell their fraction (whenever required) and even enjoy capital gains at the time of exit," Mohan concluded.
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