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Young People's Entry via Frac. Real Estate Investment

19 Jan, 2022

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Fractional Real Estate – Tailor-made for the millennial investor!

‘Millennial’ is a term used to describe people who were born in the last two decades of the 20th century. Millennials are in their early twenties to early forties today. This means that they will be professionally active for at least two decades before they hang up their boots. 

In case of money, compounding is the eighth wonder of the world as they say. It means that if you invest in assets that yield consistent returns over a period, you will create wealth. The trick is to identify an asset that can tilt the risk-reward ratio in your favor. That is, the asset should be less risky so that your initial investment is preserved and it yields a good return over and above what ‘fixed income’ instruments can offer so that you can compound your money in the future. 

 

Fractional Ownerships of Commercial Real Estate

While the young people and the millennial audience are aware of asset classes such as Equities, Mutual Funds investing in equities and debt, fixed-income assets, and even cryptocurrencies and NFTs, they may not have focused on Fractional Ownership. 

In layman's terms, Fractional Ownership (FO) is the distribution of the ownership of a very expensive and high-value asset that yields consistent return and provides capital appreciation over time. FO in commercial real estate enables young people to invest a sum of money and own fractions of a grade-A commercial real estate. Their ownership corresponds to the amount they invest. The ownership comes in ticket sizes of INR 25 Lakhs or so, and for every such ticket that you invest in, you start owning a portion or ‘fraction’ of the real-estate asset. 

In the post-pandemic year, there has been a tectonic shift in the mindset toward investing, especially among young people in India. One can see a lot of participation across equity markets and other so-called non-traditional asset classes. 

Fractional Ownership is bringing in young people and millennials into the property market as well. For a generation that prefers an Uber/Ola over owning a car, a rented apartment over buying a house, etc., this is a transformational shift. This generation prefers access over ownership but the trends in FO in grade A commercial real estate indicate a very different trend. 

Millennials such as Mr. Noaman Naik, working at Deloitte, have taken to FO investments seamlessly. With hBits as a platform, they have had an enriching experience while making such investments largely due to the transparency and ease of investment understanding that such platforms provide. His experience is summarized in the quote below: 

"I have invested in 2 properties with hBits. The first time the ownership processes were super smooth; my rentals and all related formalities were managed without any glitches, to the extent that the real-time dashboard always kept me updated on the rental returns. The success that I attained gave me the courage to reinvest again because I was sure that it was the best way to balance my portfolio. And why not? The stock markets are volatile...the Fed rate hike is coming...the Russia-Ukraine crisis...these reasons will make the stock market investment even dicier. But with hBits' properties delivering 8%-10% rental yield and 5%-10% appreciation, it makes absolute sense to invest my money with hBits."

 

What changes for the young investors?

Just like the above quote, FO today is as easy as buying mutual fund units or shares of the companies that you like. The young investor or millennial could be anywhere and seamlessly invested in the FO opportunity. They gain a rental yield of around 8% per annum and a capital appreciation of over 5% even if we consider conservative estimates based on historic data. If you look at a traditional investment such as a fixed deposit, investments like FO yield around 27.37% more return on investment over a five-year period. If you want to know more about the mathematics behind this, please click here and drop an interesting inquiry to us.

Moreover, it scores over residential real estate as below: 

  1. Tenants in such commercial properties are high quality, reputed MNC’s or large companies which come with a lock-in period hence you do not have to scout for tenants. 
  2. The legal workaround tenancy agreement as well as the collection of rent will be taken care of by the commercial real estate management company or owners of the commercial real estate. 
  3. The asset will appreciate and the rental yield with such properties is assured as reputed companies are unlikely to default on rent payments.  
  4. While you own a fraction, you do not have to maintain the corporate premises as it is managed by the real-estate company. 

While the hassles are away, you get to enjoy a capital appreciation of 5% and a rental yield of around 8%. Can investment in real-estate get any easier and more efficient? Would there be an option that can yield a higher return while relieving you of hassles with respect to the management of the asset? The answer is likely to be ‘No’, and hence fractional ownership is the way to go. 

Young people or millennials who buy such fractions can check the status of their investments and estimated returns anytime through a secure dashboard provided by hBits. They can sleep easy while their money invested in fractional ownership of commercial real-estate works hard for them. 

While FO is attracting young people into the market, there is still a long runway for participation, and we will see a lot of investments in fractional ownership in the years to come. As the asset class becomes popular and demand increases, the prices of fractions will also rise, and early investors are likely to earn well from such price appreciation in addition to the estimated rental yield that they would be enjoying as a reward for their patience and conviction in an unconventional asset class. 

Have you invested in Fractional Ownership yet? Learn how and take the first step today.

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