• Millennials Eye Innovative Investment Options!
    Kunal Moktan - 23 Oct 2017

Featured in Financial Chronicle on 23rd October 2017.

 

Grade 'A' rent-yielding commercial real estate provides the fixed returns of an FD with the opportunity of an equity upside

 

For the longest time, retail investors have seen their investment options limited to fixed deposits, mutual funds, and the stock market. While fixed deposit rates have fallen to historic lows of 5-6 percent penal 30 percent tax rate, the volatility of the stock market has seen many investors burn their fingers. Debt mutual funds have returned 10-11 percent but there is virtually no upside. With inflation at 5 percent, the real returns to investors after tax are negligible.

 

As with any other sector, millennial have taken to technology to find an answer to this dilemma with property Share. A better understanding of technology and their everyday use market them more comfortable with newer investment platform. The commercial real estate is a large asset class that has virtually gone untapped. Instead of traditional options line FDs and mutual funds, when they invest with Property Share. It gives them a minimum rental return of 7-8 percent with a potential to participate in capital appreciation. Grade ‘A’ commercial real estate provides the fixed returns of an FD with the opportunity of an equity upside. Most investors in the platform are between 25-35 years of age.

 

As with any other sector, millennials have taken to technology to find an answer to this dilemma with property Share. A better understanding of technology and their everyday use market them more comfortable with newer investment platform. The commercial real estate is a large asset class that has virtually gone untapped. Instead of traditional options line FDs and mutual funds, when they invest with Property Share. It gives them a minimum rental return of 7-8 per cent with a potential to participate in capital appreciation. Grade ‘A’ commercial real estate provides the fixed returns of an FD with the opportunity of an equity upside. Most investors in the platform are between 25-35 years of age.

 

India has a rent-yielding office inventory of 537 million sq ft worth over $ 70 billion. The rental yields in commercial office vary between  7-8 percent a year, which are only taxed at 21 percent with capital appreciation of 10-15 percent. Further contracted escalation in rent of  5  percent per year increase the yield effectively, providing a shield against inflation.

 

Property Share allows investors to participate in a tenanted commercial Property for as little as Rs 10lakh without the corresponding management hassles. Liquidity is provided on the platform through resale to other investors while the investment thesis is broken down into simple financial models allowing retail investors to invest like institutions would.

 

Smaller investment sizes also mean investors can diversify their holdings across various offices, tenants and locations. Millennials love the concept and the way it is making the product accessible to them. They understand that technology is allowing them to get better returns on their investments while making the process simpler.

 

Monthly cash flow also means that an investor can become financially independent over time as rent equals or exceeds monthly salary. This asset class has however not been accessible to the normal investor due to five principal reasons :

 

  • Ticket  sizes  which vary between Rs 5 and 40 crore
  • The ability to analyse  and model complex lease structures and cash flows
  • The degree of personal management involved
  • Liquidity due to large ticket sizes
  • The concentration of investment  [little diversification opportunity]

 

This now changing with technology allowing normal retail investors access to the product in a transparent and simple manner. Property Share aims to provide an average rental return of 7-8 percent and an overall return of 18-22 percent. It gives its users the flexibility to buy and sell their fraction individually without a lock-in, providing liquidity to an otherwise illiquid asset class. Property Share is aiming to become the largest alternative investment management platform in the country.

 

Recently, Property Share has successfully listed and funded a Rs 10 crore commercial office property in Brigade Tech Park, ITPL. Bangalore spread over 17,000 sq ft and tenanted to Standard Chartered Bank. Over 40 owners participated in the property with investment amount ranging from Rs 20 lakh to over a crore at a rental yield of 8.0 percent.


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.