When it comes to investments, stock markets always dominate conversations. While over the past few decades, individuals have been well informed about different other investments, there exists a vast landscape of opportunities like venture capital, private equity, commodities and of course, real estate that often go unnoticed.
As someone deeply entrenched in the business of investment, it is imperative for me to shed light on the alternative avenues within real estate, specifically those that extend beyond traditional property purchases.
Fractional Ownership: Democratizing Real Estate Investment
Fractional ownership is an exciting development in the real estate sector. Imagine someone was to tell us about a beautiful property that we can buy on a hillock on the outskirts of a city which probably costs 25 crore. Our first reaction would be “Oh, this is way out of my budget right now…don’t think it will be possible.” But what if we were given an option of owning 1% of that property at around 25 lakhs….answer is “could be considered!”
We all are aware of joint accounts, joint ventures/mergers, joint assets, joint owners etc. This is an old trend that we have seen between family members or friends where you jointly buy a certain asset and the cost of the asset is divided between individual stakeholders, which means you own a part or as the name suggests a fraction of the asset. This allows multiple investors to own a fraction of a high-value property, making premium real estate accessible to a broader audience. This model, which is valid for commercial or retail space as well, not only democratizes investment but also mitigates risk, as the financial burden is shared among several investors.
The concept is gaining traction, particularly among millennials and first-time investors who are eager to enter the real estate market but are deterred by high entry costs. Platforms facilitating fractional ownership are witnessing significant growth, underpinned by increasing investor awareness and technological advancements.
Pooling Vehicles/Collective Investments: Power in Numbers
Pooling vehicles, or collective investment schemes, allow multiple individual investors to pool their resources to invest in larger, high-value real estate projects. REITs (Real Estate Investment Trust) for example are pooled investments that allow investors to access the real estate market without buying properties directly. This method offers the dual benefit of diversification and professional management, often resulting in higher returns than individual investments. These schemes, regulated by the Securities and Exchange Board of India (SEBI), ensure transparency and protection for investors.
The involvement of professional managers adds a layer of expertise, enhancing the potential for profitable outcomes and achieving economies of scale. As more investors seek to diversify their portfolios, pooling vehicles will likely see increased adoption. Enhanced regulatory frameworks and investor education will further bolster confidence in these schemes, paving the way for robust growth.
Rental Products: Steady Income Streams
Rental products offer investors a steady stream of income, like a passive income, with interest rates typically ranging from 7.5% to 10%. These products, which can provide monthly or quarterly returns, are an attractive option for those seeking regular income without the volatility of the stock market. The demand for rental products is on the rise, driven by investors' desire for stable and predictable returns. The real estate market's resilience, even in uncertain times, especially after the pandemic has reinforced the appeal of rental income as a reliable investment.
With the increasing demand for rental properties, we can expect more innovative rental products to enter the market. The potential for higher yields, combined with the security of tangible assets, will continue to attract a diverse range of investors.
In a nutshell
I see immense potential in these alternative real estate investments. They offer diversification, risk mitigation, weatherproofing from market fluctuations and steady income, making them a valuable addition to any investment portfolio, thereby enabling diversification and wealth creation. The current scenario is ripe with opportunity, and I am optimistic about the future of these investment avenues.
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