“You need 40-50 crores to be able to invest in commercial real estate India”. Sheesh! That statement must have been true years ago and that would have meant burying your dreams of owning one. But, not anymore! Those with a minimum investment of Rs 10 lakh can now own a piece of ‘Grade-A’ commercial real estate in major cities. All thanks to the fractional investment in India. All hail, fractional ownership!
Even three to four years ago, most Indians did not consider the commercial real estate market a viable investment option, preferring to put their money solely into residential real estate. Commercial real estate (CRE), with ticket prices in the tens of crores, was simply out of reach for the majority of people. CRE has now become both accessible and profitable for an average Indian, thanks to the introduction of fractional ownership.
Commercial property is a whole different ballgame, and an investor’s lack of experience could end up costing them. The best way to close this gap is to work with fractional investment companies in India like Assetmonk, which has experience navigating the CRE market. Assetmonk offers a minimum ticket size of INR 10 lakhs. It also offers asset-backed CRE fractional investment opportunities with IRRs ranging from 14 to 21 percent in Hyderabad, Chennai, and Bangalore.
But, firstly, why should you invest in commercial real estate?
- Rental income: Rental income on commercial properties ranges between 5% and 12%, while yields on residential properties range between 3-4%. As a result, commercial investments are more likely to be cash-flow positive than residential investments.
- Returns: The return on investment for commercial buildings is frequently greater than that for residential buildings. Commercial properties are frequently leased for more than ten years, with the majority of the money going to the owner. The ROI for residential property is approximately 4-10%, whereas the ROI for commercial property is approximately 6-12%.
- Risk: Because commercial properties are rented for a longer period, the owner receives a consistent income. The rental period for residential homes, on the other hand, is quite short. Furthermore, because the notice period is relatively short, the tenor may leave soon. Commercial properties require more notice, so this is not the case.
- Tax Advantages: Commercial spaces provide a good return while also attracting tax advantages. Rents received from commercial leases are taxed under the applicable tax slab, according to income tax regulations. The government provides a substantial tax break for holding real estate for more than three years and considers it a long-term gain.
- Protects against inflation: Inflation is a common occurrence in the economy. In such a case, the cost of purchasing goods and services rises. Investors can profit from economic inflation by investing in commercial real estate. During an inflationary period, the number of wages paid and profit increases. This enables property owners to charge a higher fee for the use of their property. The tenants of the estate will have no problem paying the increased charge due to the increase in pay scale. Property owners can create an inflation hedge by increasing commercial real estate rates at a slightly higher rate than inflation. This adds to the already existing organic growth.
How to invest in commercial property in India?
As previously stated, there are numerous advantages to investing in commercial real estate. However, a common myth is that investing in commercial real estate requires a large bank account.
Investors can use fractional ownership to pool their funds and buy Grade A commercial property together. As an example, an office building worth Rs 100 crore can now be purchased jointly by a group of people, with each contributing Rs 25 lakh or more. This is made possible by fractional ownership startups in India like Assetmonk, which select profitable properties, perform due diligence and paperwork on them, and then bring investors together and facilitate the sale. However, not all fractional businesses are created equal.
All investors have passive ownership of the commercial real estate property. This strategy reduces the financial strain on a single investor to own property while also allowing the investor to earn returns on his or her investment. Based on their investments, all investors will share the income and expenses related to such assets in the appropriate proportions.
What are the advantages of commercial real estate fractional ownership?
CRE, or Commercial Real Estate, is a business model that aims to provide part ownership of physical assets. Grade-A commercial properties leased by MNCs, such as banks, warehouses, factories, or other IT establishments, fall into this category. In most cases, these are already occupied by tenants, and unlike in residential settings, commercial tenants do not usually vacate their premises on short notice; instead, a property can be occupied by the same company for more than ten years. Not only that, but an MNC will always pay rent on time, keep the property up to date, and maintain it well in most cases, leaving the investors with a large profit, and fractional ownership brings such assets to smaller investors.
Financial Express reports Fractional ownership is rapidly gaining popularity in India, whether for retirement planning or generating a passive income. Land ownership not only ensures security but is also regarded as a status symbol, ensuring our positions in the community’s upper echelons. However, as the world’s population grows, the most reliable asset class has become scarce and out of reach for the majority of people.
While CRE is an excellent investment because it generates a consistent rental cash flow, it also necessitates a large sum of money and good connections, which is why CREs get purchased and regulated by HNIs or Ultra HNIs. Middle-class communities will never enjoy the same profits, but fractional ownership, made available by reputable investment platforms such as Assetmonk, can help you invest in high-end commercial real estate at a fraction of the original price while also enjoying the benefits of an owner.
You can become a fractional owner of a CRE worth Rs. 100 crores by purchasing a fraction of that property for Rs. 25 lakh. Because the minimum investment amount is so low, investors of all backgrounds find it easier to invest here.