Over the past year, digitization has assumed a whole new meaning with industries across the world embracing to survive and adapt in a fast-changing business environment. The real estate sector in India, which was already going through a facelift over the past few years, has been no exception.
The rapid rise of digitization is disrupting the real estate industry through proptech (property technology). Proptech enabled platforms have now made commercial real estate accessible to retail investors through fractional ownership.
Fractional ownership, as the name suggests, is the ability to own a part of a pre-leased commercial property with a minimum ticket size of INR 25 lakhs with a foreseeable exit strategy. Through fractional ownership, a retail investor now has the chance to own a fraction of any Grade-A commercial property and benefit from its income and appreciation of value
Fractional ownership, as the name suggests, is the ability to own a part of a pre-leased commercial property with a minimum ticket size of INR 25 lakhs with a foreseeable exit strategy. Through fractional ownership, a retail investor now has the chance to own a fraction of any Grade-A commercial property and benefit from its income and appreciation of value.
So far, commercial properties such as offices, retail spaces, tech parks and data centres have been sought after by investors with deep pockets such as private equity firms for lucrative returns. The Indian Grade A real estate segment has witnessed equity investments of US$15.4 billion over the past decade. Even amid the pandemic and Work-From-Home, the segment has shown resilience due to long-term leases by tenants.
Proptech powered platforms are offering investors a chance to reap attractive returns in a pocket-friendly way through fractional ownership of commercial properties. This is made possible by closing the information gap regarding commercial properties for retail investors through an amalgamation of real estate, technology and finance.
Proptech is enabling fractional ownership in four main ways.
Proptech Brings Fractional Ownership Closer
Proptech enables interested investors in fractional ownership, firstly in the discovery of property. Video tours, photographs, and financial models are available on proptech enabled platforms that give the prospective investor easy access to all details he may be seeking. Digitisation eliminates the need for physical visits as a part of the due diligence process.
Proptech platforms also guide investors on many critical aspects in the pre-investment phase such as quality of tenant, overall peer group comparison, which makes the investment decision easier for a customer.
The investment process in fractional ownership is tech-enabled through the integration of robust payment platforms replete with regulator-approved checks and balances such as digital signatures, e-KYC that makes online transactions in commercial property quick, transparent and hassle-free
Secondly, the investment process in fractional ownership is tech-enabled through the integration of robust payment platforms replete with regulator-approved checks and balances such as digital signatures, e-KYC that makes online transactions in commercial property quick, transparent and hassle-free.
Thirdly, just like investments in capital markets, investment in fractional ownership can be tracked easily through digital dashboards. Constant monitoring by proptech enables companies to make real-time data accessible to investors. While commercial property rates do not fluctuate as often as other market instruments, pricing updates are provided semi-annually, for an investor to have a pulse of the price movements and alter his investment decision.
Fourthly, liquidity – a key consideration for any investment – is also handled by proptech. Proptech enabled platforms are accessible to all investors at all times. Any investor wishing to liquidate his holding at any point in time can do so easily by selling his share to another interested fractional owner irrespective of the geography. Once again, the process is completely transparent and easy to carry out virtually.
A Unique Opportunity to Diversify
Fractional ownership through proptech-enabled platforms provides a good diversification opportunity for middle-income retail investors through commercial real estate investment. Further, with the application of machine learning, predictive analytics and data science to publicly available data, the scope of proptech are limitless.
At the end of the day, it is a win-win for the Indian investor who has an age-old affinity for real estate as an asset class. Fractional ownership demolishing the monopoly of high net worth investors in commercial real estate has opened doors to a whole new world of opportunities for retail investors.
Guest contributor Shiv Parekh is the founder of hBits a fractional real estate platform with 35 years of experience behind it. Parekh has worked at top financial organizations in the US including Citibank, Stanford Management Company (Stanford University’s endowment that manages over $20 Billion) and Karbone (renewable energy investment bank). He has also excelled in commercial real estate development in India.