How Fractional Ownership of Commercial Real Estate Is Becoming A Popular Recession-Proof Investment

Are you concerned that a recession would devastate your portfolio? If the prospect of a future recession scares you, avoid high-volatility securities like stocks. During recessions, even strong blue-chip stocks can take a dip. Instead, look at recession-proof assets. But, there is no such thing as a “recession-proof” investment. But recession-resistant assets like fractional ownership may help your portfolio weather a slump. It can help you decrease risk in your portfolio and emerge stronger from the storm.

Recessions, as unpleasant as they are, are a natural part of the economic cycle, and there are certain indicators that one is on the way. Recent recession warnings have been issued as a result of a rapid spike in inflation and an equally dramatic drop in the stock market. No firm or industry is fully immune to recessions, some fare notably better than others during times of turmoil. Savvy investors stockpile recession-resistant assets, such as real estate investments, to help counteract increasing inflation, diversify their portfolio, and perhaps weather the storm when it arrives.

If 2020 was a threat to life, then 2022 is a threat to money. Pricey oil prices, increasing inflation, and rising interest rates are causing problems for the economy and individuals. Over the previous two years, rising markets fueled a purchasing spree for everything from stocks and cryptocurrency to new homes. With inflation at a 40-year high and at least three rate rises built in, investors are looking for safe-havens. On the other hand, capital market wealth is evaporating as growth estimates are revised, and one-year deposit rates are lingering around 5%. (hardly inflation-proof). Because real estate has a low connection with equities and bonds, it is one method of hedging against inflation. Will fractional ownership of commercial real estate ensure a good haven from a recession as risk capital departs in search of safer havens?

What exactly is Fractional Ownership?

Most of us purchase a ‘full’ share of a publicly traded corporation. But how do you purchase a share of MRF, one of India’s top tire producers, for Rs 89,293.10? Unless these firms get owned through a mutual fund plan in which you may invest as low as Rs 500, there is no other option unless you have considerable spare cash. However, if you want to invest abroad, you can own a percentage of a company’s equity. Indian investors may buy a portion of digital behemoths such as Apple and Facebook for as little as $1. (Rs 73). It is made feasible by fractional investing.

Likewise, fractional ownership of commercial real estate works the same.

Commercial leasing spaces are pricey and require you to have or invest crores, don’t they? However, the lack of crores does not preclude you from investing in financial structures. You may proceed even if you just have lakhs. Anything is possible with fractional ownership. For Rs. 10 lacs, a person can invest in fractional ownership of the commercial property through Assetmonk.

Fractional ownership is an investing strategy in which many individuals or businesses each purchase a portion of a property, dividing the costs of upkeep and acquisition as well as the return. Rather than purchasing an entire building and coming up with all of the money, fractional ownership investment allows investors to buy a percentage share in properties. For new investors who have little market knowledge, fractional ownership offers a low barrier to entry. An investor of fractional ownership should start putting money in premium buildings in major areas without spending a lot of money.

Fractional Ownership: A Recession-Proof Investment?

  • Stability: Small investors are now fractional owners of commercial buildings due to portfolio diversification, ease of exit, capital gain, and consistent rental income. Additionally, India’s commercial estate market would rise from 13-16% shortly, rendering fractional ownership of commercial buildings a profitable investment. Aso, India’s commercial real estate market witnessed a small decline in 2020. Nonetheless, it improved significantly in Q3. Covid-19 has lowered global real estate values, notably in London, Dubai, and Stockholm. Per industry experts, courtesy of India’s booming outsourcing business, office leasing rose over the same period. Multinational corporations (primarily from the United States and Europe) occupy over 63 percent of commercial space in India. It should convey to NRI investors that the moment has arrived for them to have a cut of the property pie.
  • Diversification: Do you want to spread your property holdings but don’t have the finances to buy properties in different markets? This is possible via fractional ownership of the real estate. Shared ownership, for example, allows you to invest in a home while engaging in commercial office spaces and rental homes and making mortgage payments. Since your capital is not tied to a particular property, you can spread it among many properties, different grades, different locations, and other regions in the same city. You can then choose to concentrate in a specific field or continue diversifying and earning from economic highs and lows. It lowers the risk of market volatility. Fractional investment permits you to enjoy all the benefits of diversification sans having put down large deposits on every property.
  • Accessibility: Through fractional ownership, one may have access to and invest in Chennai’s INR 200 crore office complex. It is a large investment that is generally only available to the wealthy. Yet, owing to fractional ownership, anyone can own an identical house in Chennai for as little as Rs 10 lakh. Such office property can also produce yearly rental returns ranging from 6% to 10%. It generates a rental income of Rs 60,000-Rs 1 lac per year. A person can invest in commercial real estate with Assetmonk for Rs. 25 lacs.
  • Long-term leasing contract: Tenants of rental units move out regularly. So, the landowner has to pay the rent until a replacement gets located. Yet, commercial buildings have lease terms of 3 years or more. Also, the leasing contract can be extended. So, commercial properties offer investors assured revenue. Such high-end commercial properties are leased to massive corporations, information technology firms, and financial institutions. These firms pay their rent on time. In addition, considering the effort, time, and resources spent on converting the spaces into workplaces, these tenants extend their lease contracts. Invest in a previously rented business property, however, for tremendous gains.
  • Rental Income Returns: Rental money is put directly into the bank regularly. Unlike bank deposits or bonds, you must wait for the investment to mature and the lock-in period to end before receiving your earnings. Due to continued rental revenue and appreciation, commercial estate fractional ownership gives a high return on investment. Commercial property investment in India has grown at a CAGR of 16 percent over the last five years. Aside from the increased value, purchasing with a reputable fractional ownership company may result in a 15% boost in rental income returns within the next three years. It is incorporated into the leasing contract to safeguard against inflationary pressures, guaranteeing that your investment stays constant over time.
  • Property Appreciation: Investing in a chunk of commercial real estate yields a two-fold return. Fractional ownership provides immediate financial rewards plus commercial property appreciation. You own a parcel of commercial property. As a result, the value of your stake will soar. It is becoming a more financially appealing option for small investors.
  • Liquidity: “But, real estate lacks liquidity,” you argue, Therefore, I’d rather not invest.” We comprehend. But wait a second. Real estate does have a liquidity problem. Fractional ownership, on the other hand, is not. The liquidity of typical real estate investments is lower than that of fractional property assets. Of course, you’d need to check your contract, but it’s unusual to be able to sell your investment at any moment, potentially rendering trading less dangerous. How so? You can always resell and give others your portion of the property.