Alternative Investment

Real estate opportunities as an alternative investment

For most Indians, real estate has always been a popular alternative investment choice alongside gold. Traditional real estate comprises land, residential properties, retail space, commercial office space, hotels and restaurants, hospitals, factories etc. In recent years, we are also seeing the emergence of co-living and co-working spaces in the real estate sector especially in the metro cities. However, with surging real estate prices in urban areas, it had almost become beyond budget to invest in properties with ticket sizes running into several millions for residential or crores of rupees for a commercial property. The only available option is to then invest in REITs or purchase shares of real estate companies which have its own risk return matrix.

Many new age digital companies have started providing various forms of investment options for Real Estate for an investor both in the form of equity and debt investment perspective.

There are various platforms providing fractional ownership opportunities wherein investors can get an exposure to the commercial real estate market by investing a fraction of the cost of the property (generally > 25 lakhs per investment).  In these types of opportunities investors can earn somewhere between 10-14% IRR over 5 yrs.

Another option that is considered safer in comparison to equity ownership in real estate is debt investment which is akin to an individual giving a loan to a real estate company backed by project security, cash flows etc. It allows for even greater democratization of opportunities for all investors, and offers a fixed return for a specified period of investment. The variability of debt investment is much lower. The investments are usually secured by collateral to minimize the risk of write offs. In debt investment opportunities investors can start investment from as low as Rs 1 Lac+ with expected returns of 13-17% IRR over investment horizon of 1-3 Yrs.

The emergence of technology-driven alternative investment platforms has given a significant boost to retail investors, and the benefits are not just limited to democratization of opportunity due to lower ticket size. In the conventional manner for equity investment, even if an investor had the funds to purchase a property outright, there will still be a need to maintain and monetize it. In conventional debt investment, investors have to structure the deal, do the due diligence, monitor project progress etc. However, investing in real estate through a professionally managed alternative investment platform eliminates all such concerns. Here processes are professionally managed by fund managers who work in these platforms, Investors can get a steady return without any additional effort from their side.

Conclusion

Debt investment in real estate is a lucrative option for an investor focused on safeguarding investment. However, for someone with a risk appetite, fractional ownership is a great idea. For the best outcomes, it is always ideal to start small and invest no more than 10% of one’s investment portfolio in alternatives. As an investor, you can also consider a hybrid model where some of your investment is secured through debt channels and the rest invested in equity ownership. Thus, you are more likely to get higher ROI without the risk of losing out all your investment. These are early days in real-estate alternatives, and as the market expands, we will see a lot more opportunities emerge in the arena!



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Disclaimer

Views expressed above are the author’s own.



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