OPINION: The future of real estate investing is Fractional

Most of the individuals of the Gen X (born between 1965 to 1980) especially from middle class families, have spent majority years of their lives saving up for retirement, getting their children married and after meeting all of these responsibilities, have finally ended up buying a residential real estate restricted to their domestic markets.

On the other end of the demographic, are the millennials (born between 1981 to 1996), who often think of starting their real estate investments around the age of 28-30, but even then, have to begin their investments with huge down payments and seek big loans with lengthy tenures that take years to pay back. And once they finally own the property, there are ongoing expenses like mortgage payments, property maintenance, property taxes and insurance.

From the years 1990 to 2010, post globalisation and liberalisation, travelling across countries and continents became more frequent and individuals began to recognise themselves as global citizens. This changed further from the years 2010 to 2020, when these individuals began investing in real estate across the globe. It was more after 2008, the global financial crisis, when
investors went beyond their traditional residential investments and started venturing into different asset classes globally like commercial, warehouses, hotels etc. However, in 2020, the world was presented with an unprecedented economic, humanitarian and healthcare challenge.

The pandemic affected everyone and changed nearly everything. We have advanced by almost a decade because of the ongoing pandemic in terms of technology usage and the world is closer, now more than ever. So what now? This is where fractional ownership in real estate comes in the picture. For the first time, investors can buy a share of a property anywhere across the globe, through a fully-compliant, fractional, tokenized ownership.

FracAssets is a tech-backed distribution platform that enables investors to identify fractions of real estate across the globe. FracAssets now gives investors an opportunity to diversify their real estate portfolio by investing in fractions of commercial, residential, warehouses, hotels, second homes, senior living and co-living across the globe.

So what is fractional ownership? Fractional Ownership, in simple terms, is when a number of investors, not necessarily known to
each other, join together to invest in a real estate asset so that all of them can benefit from a share of the income that the asset generates, and any appreciation in the value of the real estate. For example, a 3,500 square feet office space which costs approximately ₹10 crore in the commercial hub of Mumbai, can be owned by 100 diverse and unrelated individuals who each invest
an amount of ₹10 lakh. This way, every investor earns returns proportional to his respective share from the total rental yield, enjoys currency appreciation and can exit the investment at the prevailing market value of the property once it appreciates.

Future of real estate investing is only Fractional -- investments beyond boundaries and nationalities – so what’s happening globally? Fractional ownership might be a fairly new concept in India, however, we believe that the idea is here to stay and the future of real estate investing is only fractional. If you look at global markets like the USA, Canada, China, Singapore and Hong Kong, fractional investments have shown significant traction. Fractional ownership in real estate is expected to become a dominant investment trend in Indian markets as well in the coming years, as it provides accessibility for every generation of Indians to invest and diversify their real estate which was previously limited through the traditional route and most did not have the financial means to do so.

Key benefits of fractional ownership:
Low ticket size:
Investments in fractional real estate globally start from as low as $10 in USA, CAD 50 in Canada and AED 2500 in the United Arab Emirates (UAE). Fractional ownership of a Grade A property is a great solution for someone who is looking for a pocket-friendly
investment, outside the volatility of share markets and low interest rates on fixed deposits. Thus, providing a completely new investment asset class to investors, who can now own a real estate asset according to their budget and location preference.

Asset class and location diversification:
Like the adage goes - “Don’t put all your eggs in one basket,” with fractional ownership an investor with a budget of say ₹50 lakh, can allot the investment amount across fractions of properties and receive returns from a hotel apartment in Dubai, a senior living in Ontario or a warehouse in India, in turn diversifying their portfolios.

Currency diversification:
Investors unlock a whole new path to earn returns -- currency appreciation, beyond the traditional rental yields and capital appreciation. Investing across multiple locations and currencies enables investors to earn returns in dollars, dirhams, euros etc., thus diversifying their currency portfolio and reducing the risk of investing in only one or two currencies. For example, a 23 year old, just starting off her career, can save up and invest in a fractional residential property in the UAE and benefit from a rental yield of approximately 6% to 7% along with capital appreciation. The investor is also benefiting from currency appreciation as dirham is pegged to the US dollar.

Accessibility:
Fractional ownership provides access to premium properties which were previously only available to high net-worth individuals and large institutions with very high ticket sizes.

Pre-vetted properties:
All the properties listed on the platform have a stringent screening criteria and undergo thorough due diligence. Fractional real estate products are professionally managed assets and in general a fully supported end-to-end process where investors have hardly any headache to take. An investor only requires to have their know your customer (KYC) documents and an online bank account to start investing. We at FracAssets, identify assets from different platforms that are ready, fully constructed properties and are pre-leased. This mitigates the risk involved in dealing with real estate that is under development or not constructed.

How are the investments structured?
For each property, a special purpose vehicle (SPV) is created, which makes such co-ownership in real estate possible.

An SPV is just “a separate new entity” – it’s no different than setting up a new business. An SPV is a distinct company created for a specific purpose with its own assets and liabilities. Properties are owned in newly formed SPVs and the customers are shareholders or partners of the SPV. SPVs only purpose is to hold the property on behalf of the customers and no other operational activities are carried out in them.

Investment opportunities
FracAssets uses various global fractional platforms to regularly provide investors investment options in real estate across commercial, residential, warehouses, hotels, second homes, senior living and co-living. A few opportunities on our platform are a residential apartment in Dubai, UAE, an office space in Mumbai, India, a second home in Paphos, Cyprus etc.

To summarise for millennials, the future of investing in real estate is only Fractional
Individuals can no longer be restricted to a particular nationality as decided on paper or by their birthplace. Technology has been disrupting every industry and real estate is no different. Now with technology and social media each one of us is a global citizen -- one world. An individual who wasn’t thinking beyond residential real estate is now not only looking at investing globally
but investing across commercial, warehouses, hotels, second homes, senior living and co-living globally. Fractional ownership is a trend that has entered the Indian market recently and has since then made real estate a more lucrative and feasible investment option for all generations of Indians. Fractional ownership is gaining great acceptance and traction from both the investors as well
as the overall real estate industry and is here to stay.

About the authors
The authors include Hitesh Dhankani, chief executive officer (CEO) of Analah21 and FracAssets and was assisted by Fazilat Reshamvala.

Disclaimer: Prior to making any investment decisions, any recipient of this document or the information should take steps to understand the risk and return of the investment and seek individualised advice from his or her personal financial, legal, tax and other professional advisors. Investments in real estate and unlisted shares carry a risk and may not provide the anticipated returns and there is a possibility of losing the entire capital as well. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance.

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