• How Real Estate Investment can help Millennials Secure their Future
    Kunal Moktan - 27 Feb 2018

Featured in Financial Express on 26th February 2018.

 

Millennials have their own criteria for making investments, and are always on the lookout for tech-based solutions that can help them maximise their hard-earned incomes with minimal risks.

 

Game changers, disruptors, early adopters and digital pioneers – these are some of the epithets that Indian millennials sport with pride, and why not! They have been championing the cause of a more technology-driven India, setting the ground rules for the ongoing digital transformation. Market trends lie at their mercy, and they have both the power and the desire to greatly influence consumption patterns. Armed with evolved sensibilities and a global outlook, they are vastly different from the generations that preceded them in their choices and their preferences, and nowhere is this gulf more apparent than in the way they make their investments.

 

Making investments, the millennial way

 

The traditional Indian investment approach has been to opt for either low-risk, low-payout long-term instruments, such as making a recurring deposit or purchasing gold, or to go for short to medium term instruments, like mutual funds and stocks, involving higher risks but generating high returns. Millennials, however, have their own criteria for making investments, and are always on the lookout for tech-based solutions that can help them maximise their hard-earned incomes with minimal risks. This is why these digital natives comprise a large percentage of lenders on online P2P lending platforms, buyers of cryptocurrencies such as bitcoin, or investors in equity-linked savings scheme.

 

A growing number of millennials are also opting for investments into commercial real estate, as opposed to investments into residential properties made by their parents. But why?

 

Commercial real estate: better yields for better financial security

 

This shift in investment outlook is driven by pragmatism. Residential real estate is often an extremely capital-intensive investment which generates substantial returns only in the long run. Rental incomes from residential properties are not really guaranteed and come with their own set of challenges, such as the hassle of finding decent tenants, frequent maintenance, tenant churn, and long periods of zero occupancy. These investments are also riskier, as property rates in the residential market are known to fluctuate heavily. These factors give rise to the possibility that buyers might not be able to realise significant returns on their investments, once adjusted for inflation. For most millennials looking to make investments with a view of securing their futures, this is a deal breaker.

 

Commercial real estate, on the other hand, is a much safer bet. Leases on these properties are usually taken out for multiple years by blue-chip companies, thus ensuring that steady rental income is assured for a specific duration of time. With India’s rise as a prominent international business destination, the sector is also witnessing remarkable growth; the country’s 537 million square feet of rent-generating commercial real estate inventory is currently estimated to be worth nearly $70 billion. This is only expected to rise in the near future, as more and more global MNCs establish their presence in India.

 

‘Tech’ that: How technology is enabling millennials to make high-value real estate investments

 

With the lucrative appeal of commercial real estate investments established, how do millennials actually go about buying commercial properties? This is where tech-led platforms such as Propertyshare.in step into the picture. These platforms enable Indian millennial buyers to partially or completely invest in risk-adjusted, Grade A commercial properties, which are then rented to AAA multinational tenants to generate dividends. The investments can start as low as Rs 5 lakh, making the entire process extremely affordable for millennial buyers whilst also allowing them to make multiple investments to diversify their portfolio, increase rental incomes, and minimise risk. Average rental returns to the tune of 7%-8% are quite common, while the overall returns can be as high as 22%. Property also provides the best post-tax returns in India, which further underlines its feasibility as a viable avenue of income generation.

 

By employing state-of-the-art technologies such as big data analytics, machine learning, and pattern recognition, these innovative platforms also provide in-depth insights about a prospective property and minimise the lag between tenant occupancies, thus maximising the generation of returns. Investors also benefit from rent increase, as well as the price appreciation at the time of property liquidation. The entire process of buying and selling is also made extremely simple and hassle-free, akin to buying and selling of stocks. Some tech-led platforms, for example, assume up the responsibility for end-to-end processes, from due diligence and paperwork to fund liquidity, asset management, and tenant search. Their centralised platform also ensures unmatched transparency and accessibility to buyers.

 

This integration of convenience, risk mitigation, and high returns generation appeals to millennials, who are increasingly favouring such fractional investments in commercial real estate for supplementing their current incomes, as well as to create a steady income stream for their post-retirement phase. They also have the flexibility to buy and sell as per their requirement, which further create another avenue of capital in case of an urgent financial requirement.

 

India is projected to become the youngest country in the world by 2020, with a median age of 29. Millennials will be a major part of the Indian population and will play an increasingly important role in the country’s workforce as well as its consumer base. With these forward-looking, new-age consumers wanting better options in everything that they do, is it really a surprise that commercial real estate investments, with the myriad benefits that they offer, are finding growing favour as lucrative investment avenues to secure their future?


About the Author

Kunal has over 7 years of real estate investing experience with Blackstone Real Estate Partners, the world's largest real estate fund with more than $102 bn of AUM. Kunal was part of a 3 member team that started Blackstone's India investment office investing $1 bn over 5 years becoming the largest office landlord in the country.