Exploring alternative real estate investment vehicles: REITs, crowdfunding and more – Money News

The Indian real estate sector is undergoing a monumental shift, with innovative models throwing open gates to an asset class confined to ultra HNIs and seasoned investors. As emerging alternatives like REITs, fractional ownership platforms and real estate crowdfunding disrupt traditional paradigms; they carve out a niche for millennials and first-time investors through lower entry barriers, steady returns and transparency.

The Rise of REITs

“In the face of escalating real estate prices per square foot, alternative investment avenues such as REITs, fractional ownership, and discounted bank-financed properties are emerging as robust options. Moreover, they introduce sachet-sized investment options, potentially enticing millennials to engage with real estate as an investment category,” says Sridhar Samudrala, Founder, Hecta.

REITs (real estate investment trusts) allow small-ticket investors to own fractions of income-generating real estate assets. Although new in India, the performance of the first REIT listed in 2019 has caused ripples – delivering over 18% returns since launch. REITs raise funds by listing units on exchanges, then utilize these funds for acquiring, developing or managing commercial, residential or industrial income-yielding properties. Rental income from tenants and capital gains from property sales are then distributed as dividends to unit-holders. Regulations mandate 90% of income as payouts, making them attractive instruments.

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Data indicates over 700 million sq. ft. of grade A office stock in India is REIT-compliant, revealing immense potential for commercial REITs going forward. Moreover, experts believe the concept of smaller REITs is gaining traction. In the US, SMREITs (small-cap REITs) possessing real estate assets worth only $50-500 million flourish despite lower trading volumes.

Introducing SMREITS in India with a threshold of just ₹50 crore can draw increased retail participation in under-served niches like affordable housing. “The alternative route is known to offer substantial returns on low-cost investments,” affirmsHarish Fabiani, Chairman, IndiaLand Group.Clearly, REITs are reforming traditional realty investing across the risk-return spectrum.

Fractional Ownership

Options for co-investing in luxury properties are also expanding rapidly through fractional ownership platforms. By purchasing shares in hotel rooms, resort villas or office spaces starting from just ₹10-25 lakh, small-ticket investors can now own fractions of expensive assets earning high rental yields, which was earlier out of reach. Holding periods, returns on investment and occupancy guarantees vary across deals. Industry experts believe top-tier developers partnering with fractional ownership startups promote trust, diversification into higher-return asset classes through bitesize investments.

Widening the Canvas

Vishal Raheja, Founder & MD, InvestoXpert.com, says, “In the dynamic landscape of real estate investment, exploring alternative vehicles such as REITs and crowdfunding opens new avenues for diversification. These alternatives offer flexibility, liquidity, and potential for attractive returns.”

Real estate crowdfunding platforms are fast emerging too – pooling micro-investments in vetted projects. Lower volatility versus equities, passive income potential and inflation-beating characteristics establish real estate as portfolio ballast. “Amidst the evolving landscape of real estate investment, investors are increasingly turning to alternative vehicles for diversification and opportunity,” informsMrinaal Mittal, Director, Unity Group.

Clearly, reimagining realty investment to accommodate diverse risk appetites and ticket sizes is transforming wealth creation pathways.

As technology unlocks transparency and millennials seek asset diversification beyond volatile equities, interest in novel real estate investing channels will likely snowball. Their regulated structures and human interface edge out crypto assets as better wealth creators for first-timers. Indeed, the Holy Grail of blending accessibility, trust and favorable risk-return dynamics seems within grasp through these alternative avenues democratizing real estate. The doors to India’s largest asset class now lie open – upending traditional investing conventions and bridging accessibility gaps through the retail investment floodgates this ushers in.