The Indian commercial real estate has always been a preferred asset class for investors owing to its robust fundamentals and resilience. As per a recent report, the segment has attracted equity investments to the tune of USD 15.4 billion since 2011. Having witnessed a record leasing of 42 million sq ft in 2019, commercial real estate is likely to remain the preferred choice of investors in 2021. However, certain important issues require government intervention to continue with the growth momentum.
Commercial office real estate has been a booming investment class in India. With policy reforms, institutional investments, foreign partnerships and growth in the IT/ITeS service sector, the demand for Grade A office real estate has witnessed a surge. The top global investors are betting big, despite the rising concerns amid the prevalent work-from-home policy. With several notable government reforms and initiatives, such as Make in India, Real Estate (Regulation and Development) Act (RERA), Goods and Services Tax (GST), Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT); India is expected to rise high on the commercial growth curve in 2021. Assured and lucrative investment returns in the commercial segment are further likely to aid this growth.
To propel the growth of commercial office real estate in the country, we expect the government to address certain key concerns. First of all, the stamp duty needs to be reduced. While Maharashtra has already taken the lead in this direction, other State’s implementation is also required. Next, the GST input credit on rent received should be allowed for commercial office space developers. GST on TDR and joint development of commercial properties should also be looked into. We hope that the upcoming budget 2021 would focus on the allocation of funds for IT infra, involving digitisation of land records in urban areas. The government should also promote proptech companies by providing credit guaranteed loans to build blockchain implementation of property records. Since the growth of start-ups is likely to have a positive bearing on commercial real estate, it is important for the government to address the concerns of these proptech and fractional investment start-ups.
Since the commercial segment is poised to grow in the post-pandemic period, fractional ownership is one of the additional options, available for developers who wish to liquidate their existing commercial properties. While fractional investment opens new avenues for the office developers, it also offers an investment class to smaller investors, which otherwise was available only to the High-Net-Worth-Individuals (HNIIs), family offices and institutions.
The concept of fractional ownership in real estate is prevalent in the US and Europe and is enabled by a few proptech companies. This concept is finding its acceptance in India now. For investors looking to invest in small and second-homes, it is one of the best ways to invest and own Grade-A premium commercial properties. Also, it is a great way to build a stable long-term income. Fractional investing also enables you to diversify your investment portfolio by investing in multiple properties with smaller investments. It is an investment that offers both portfolio diversification and is superior to residential investment in terms of yield.