Fractional Ownership of Commercial Real Estate: Empowering NRIs to Invest in India's Booming Property Market
India's Commercial Real Estate (CRE) sector has contributed significantly to the country's growth by developing office infrastructure, IT hubs, and knowledge parks. The sector has also created employment opportunities and investment avenues for many. According to Colliers, total leasing in India hit a record 50 million square feet high in 2022, indicating the sector's momentum. Commercial real estate has become a popular asset class for Indians due to its potential for strong rental yields and capital appreciation.
Investors in commercial real estate now have more options, including Real Estate Investment Trusts (REITs) and Fractional ownership, making it possible for retail investors to invest in the sector with small amounts of money.
Fractional real estate investing involves buying a portion of an investment property, instead of purchasing the whole property. This allows investors to enter the real estate market with a lower investment, the fraction of ownership is based on the minimum share size and the total number of available shares. For example, if there are 10 shares available and an investor purchases 4 shares, they own 40% of the property and can receive a share of the generated income.
Funds collected from investors are routed through a Specific Purpose Vehicle (SPV) to purchase the property, and each fractional owner is a shareholder in the SPV. The investment platform assumes responsibility for the SPV and the underlying property.
In the past five years, fractional ownership in real estate has experienced a significant rise, with an estimated total transaction value of Rs 750 crore, as reported by hBits, a fractional ownership realty firm.
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Fractional ownership is making it easier for NRI investors with a minimum of Rs 25 lakh to own commercial real estate in large Indian cities and industrial hubs, including IT parks, office spaces, and warehouses that are leased to e-commerce firms. Various Investment platforms are now offering partial ownership of physical assets, including Grade-A commercial properties, through fractional investing.
The increased accessibility of investment opportunities and fractional ownership options are the major factors driving the increased investment activity of NRIs to in Commercial Real Estate, and this trend is expected to continue. Properties in major Indian cities like Mumbai, Delhi, Gurgaon, and Bangalore are particularly attractive to NRIs due to high demand and economic growth. In addition, the demand for professionally-managed properties is also growing, providing a hassle-free investment experience and stable rental income. The rising interest of NRIs in commercial real estate solidifies its position as a major asset class in their Indian investment portfolios, underscoring its importance in the Indian real estate market.
According to a recent survey conducted by MYRE Capital, a significant population of non-resident Indians (NRIs) are considering investing in commercial real estate (CRE) in India to diversify their portfolio. The survey also projects a CAGR growth rate of 9.2% for the Indian real estate segment between 2023-2028. . In addition, the survey found that 18% of NRIs strongly prefer investing in CRE, while only 9% prefer investing in the residential segment for a diversified portfolio.
In conclusion, fractional ownership is opening up new avenues for NRIs to invest in India's booming commercial real estate sector. With the potential for high rental yields, capital appreciation, and hassle-free management, it is not surprising that more and more NRIs are considering commercial real estate as a viable option for portfolio diversification. The continued growth of the Indian economy, along with the emergence of fractional ownership, has created a perfect storm for NRIs to capitalise on the opportunities available in the commercial real estate market. As we move forward, it will be exciting to see how this trend continues to evolve and shape the future of India's real estate sector.