Why Senior Citizens Should Opt For Fractional Ownership

In an ideal world, people would look forward to retirement so they could finally enjoy the things they never had time for before — a vacation for the rest of your life, if you will. Unfortunately, most people dread retirement because it spells the end of regular income. It doesn’t have to, though.

The best financial advice any expert can give to senior citizens — or anyone approaching retirement — is to invest smartly; to look beyond the conventional fixed deposit or residential property, and explore alternative asset classes that can provide a win-win-win combination of regular monthly income, security of capital and steady expansion of wealth. One such investment format is fractional ownership of commercial real estate.

Let’s address the most obvious question: what is fractional property and why is it the ideal investment for senior citizens? Fractional property refers to a group of investors pooling their funds to jointly purchase real estate so they can reduce the cost burden and risk exposure and share the rental income. It is particularly ideal for investing in Grade A Commercial Real Estate (CRE), the cost of which can run into hundreds of crores, but requires merely ₹25 lakh from each investor. Such premium CRE usually yields high rental returns of 6% - 10% — this means an investment of ₹25 lakh could yield approximately ₹1.5 lakh to ₹2.5 lakh per annum. This is double or even triple the income from residential rent. It is for this reason that fractional property is already a popular asset class in advanced financial markets such as the UK, Singapore and Hong Kong. In India, it is relatively new, but is already anticipated to grow into a $5 billion market within three years.

Here are five reasons why:

Monthly rental income: One of the best things about fractional property is that the rental income is sent straight to the investors’ bank accounts. Unlike fixed deposits, gold or bonds, there’s no need to wait for the investment to mature before you can access your earnings. And unlike frequent vacancies in residential property, premium office spaces tend to draw high-ticket tenants such as MNCs and banks, which tend to sign long leases of minimum five years and pay rent on schedule, so steady rental income is assured.

Security of capital: Property has always been considered one of the most secure assets because of its tangible, physical nature. It is a real-time asset and its value is linked to the continuity of the building. Unlike stocks or mutual funds, its value does not see-saw with market conditions. Unlike bank deposits or bonds, it has value on ground and not just on paper.

Hassle-free: If you’re thinking, ‘But I know nothing about commercial property,’ then rest assured there’s no need to even leave your house or lift a finger. Reputed fractional property firms do all the research and due diligence and pick only the most lucrative properties. There is complete transparency and investors can access all relevant information about the property on the online dashboard. The firm does all the paperwork and even conducts virtual visits to the property for those who are unable to travel. After the sale, the firm has professional property managers who maintain the asset and ensure that rent is collected and credited to your account. In fact, investors who wish to sell their share of the asset can also do so on the same online dashboard.

Goldilocks asset: Fractional property is structured in a manner that ensure it is neither too expensive (such as purchasing property solo) nor is too small like the Senior Citizens Savings Schemes (SCSS), which limit investments at ₹15 lakh. With fractional property, one can choose how much they want to invest upwards of ₹25 lakh. One can invest more in a single property and thereby ensure a higher share of the rental income, or invest in multiple properties and further diversify their portfolio.

Hedge against Inflation: One major problem with most conventional investments, such as bank deposits or residential property, is that they don’t perform well against inflation. Fixed deposit rates are currently the lowest they have been in a decade, hovering around 5.5%, even as inflation continues to rise (currently at 5.03%). This means deposit holders are looking at barely any real return on FDs once inflation is accounted for. With commercial property, however, an increase of 15% in rent in every three years is written into the contractual agreement with tenants. This built-in escalation sets off inflation in the future.

It’s nearly pandemic-proof

Covid-19 continues to slow down the economy, impacting both income and investments. Fortunately, commercial property in India has been quick to bounce back, thanks to the country’s strong outsourcing and IT sectors. Those who have invested in pre-leased, Grade A office property have continued to enjoy steady rental income as the tenants are usually MNCs with deep pockets that have signed long leases. In fact, during such difficult times, fractional property is not just a smart decision for retired citizens, but perhaps also the ride-or-die investment for younger folk securing their future.