Long before Domino’s and Pizza Hut existed in Mumbai there was a pizza chain called Smokin’ Joe's. It served pizzas that were amongst the best in the late 90’s and early part of the millennium. Pizzas were considered exotic then and since they were large, the price was outside my budget to be able to afford it regularly. I recall wishing – “If only they would serve pizza ‘by the slice’ instead of the regular 10-inch or 12-inch - then I would be able to have it more often.”
In commercial real estate something similar has existed for long. Unlike the residential market where rental yields are terribly low – in the commercial market the yields are honorable at 7%-8%. The only problem was accessibility to that asset class was restricted to only a handful of participants. One primary barrier was the ticket size of a high-quality commercial space. In the last few years an option has emerged called fractional ownership. Fractional ownership is akin to selling a single commercial asset ‘by the slice’ to numerous investors. Simply put, if an office space is a 12-inch pizza with eight slices, each slice can be sold to eight different investors.
The minimum investment required is INR 25 lakhs in most of the platforms although the threshold has been lowered by select platforms to even INR 5 lakhs. Two parameters that are non-negotiable in this product are 1) Only ready commercial property and no under-construction 2) Existing tenant already occupying the space so the rent flows to the new buyers/investors immediately.
There are two sources of returns for investors in this: 1) Rental income 2) Capital appreciation IF the property is later sold at a profit.