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Gold or fractional ownership: What can be the best bet this festive season?
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Conventional wisdom dictates that investments are made upon careful analysis and empirical research. Some investment instruments in India comprise a solid emotional core. Case in point – gold and real estate both retain immense emotional appeal but have remained prudent choices for Indians as secure assets that appreciate over time. 2022 has been a challenging …
Continue reading “Gold or fractional ownership: What can be the best bet this festive season?”
Conventional wisdom dictates that investments are made upon careful analysis and empirical research. Some investment instruments in India comprise a solid emotional core. Case in point – gold and real estate both retain immense emotional appeal but have remained prudent choices for Indians as secure assets that appreciate over time.
2022 has been a challenging year. As the world economy was limping back to normalcy after a Covid-19 battering, Russia’s military invasion of Ukraine plunged global supply chains into another crisis. The decade, thus far, has been a tumultuous one economically for India’s salaried population and small business owners as they struggle to stem the dip in their savings.
As the festive season approaches, which is the better investment option? A closer analysis of some crucial parameters below illustrates several distinct advantages real estate offers on account of new-age accessible instruments like Fractional Ownership of pre-leased commercial real estate (CRE).
Rate of Returns
Gold is a safety net, enjoys liquidity and can be exchanged with another piece of gold or cash at any point in life. Real estate is also a stable investment option and Fractional Ownership in CRE, as a new age investment instrument, also offers higher returns than residential properties.
The rental yield of a commercial property, at around 8 percent-10 percent per annum, is higher than the yield from a residential property. So, an investment of Rs 25 lakh in fractional ownership can potentially deliver Rs 2.25 lakh per year in rental income alone. The compounding returns over a period lead to a steady wealth expansion, and regular rentals improve monthly liquidity.
Inflation
Gold has historically been a hedge against inflation, and it continues to be part of most investment portfolios to mitigate financial risks during inflation and economic, social and geopolitical crises.
As retail inflation stays around the 6-8 percent mark, accessible instruments like fractional ownership, unlike many other traditional instruments, offer 9 percent returns and a solid second income that can help beat the rise in inflation.
According to industry reports, data centres and warehouses, a growing segment within commercial real estate, can offer far greater returns over the next 3-5 years. They require large land parcels with ready infrastructure and give higher returns of 10-14 percent.
Experts add that the smart move will be to diversify their portfolio using higher-yielding assets like commercial real estate.
Earning Steady Income
Though gold enjoys low volatility and has a high preference in Indian households as an auspicious commodity, it lacks the numerous benefits associated with real estate. A distinct advantage real estate enjoys as an asset class is the ability to generate income at regular intervals through rent.
Fractional ownership is also changing the traditional notion of rental income. By making the CRE market more accessible to retail investors, fractional ownership is also changing the idea that the commercial sector is only for high net-worth and institutional investors.
It has solved one of the biggest problems in commercial property, i.e. high capital investment, encouraging small investors to enter the market and making it a viable investment format for new-age investors.
Growth
While it is a personal choice for every individual to invest in gold or real estate, it has been witnessed that in the longer term, real estate, especially fractional ownership in real estate, is a greater investment option.
The author, Shiv Parekh, is the founder of hBits. The views expressed are personal
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