Regardless of whether you’ve been paying attention to the news, you can’t have missed this year’s primary issue and source of concern: record-high inflation. For good reason, investors have been keeping a close eye on inflation. Inflation rose initially as a result of supply chain worries created by Covid, and more recently as a result of disruptions in energy markets induced by Ukraine’s invasion. Inflationary factors are becoming more entrenched and widespread. But, among all of this turmoil, one recurrent question remains: if inflation cannot be eliminated, how can we protect ourselves from its consequences? It is at this point that commercial real estate fractional ownership becomes critical.
What exactly is inflation?
Inflation is defined as an increase in prices, which means that a customer cannot buy the same product or products for the same price. The consumer price index is frequently used to calculate the rate of inflation. This determines the average change in the prices customers pay for goods and services over time.
Simply put, it is the progressive erosion in the buying power of the US dollar. With a 1.8 percent inflation rate, the $400 washing machine you bought last year will cost you an extra $7.20 today. It may not appear to be much, but when you add up all of your purchases throughout the year, such as food, gasoline, phone bills, massages, and so on, you’ll have a much larger quantity and a much higher cost for items over time. If a country has above-average inflation, the impacts may be amplified.
But, it is vital to recognize that inflation is not synonymous with appreciation. A real estate appreciation rate is the increase in the value of a property over time. When demand rises, the value does not rise in the currency. In an inflationary environment, a property might appreciate more than the inflation rate, or it can depreciate.
Real Estate Vs. Inflation
Inflation is a time-sensitive issue, and long-term investments are especially critical at this time. Commercial real estate is one of the few assets that is immune to market volatility and begins to recover significantly sooner. These faster recovery timeframes are a major reason why investors flock to commercial real estate investments.
An inflation hedge is one method of combating inflation. This investment protects a currency’s declining buying power as a result of its value falling owing to rising prices. This procedure entails investing in an asset that is expected to retain or improve in value over a certain period. On the other side, hedging might entail taking a larger stake in assets, which may lose value more slowly than the currency.
Hedging can help safeguard the value of an investment. Certain investments may appear to produce a good return, yet they might be sold at a loss due to inflation. Assets believed to be an inflation hedge can be self-fulfilling, which maintains their valuations high even if their fundamental worth is lower.
How Can Commercial Real Estate Keep Investors Safe From Inflation?
Commercial real estate has repeatedly been shown to be a viable inflation-hedging option. It is an asset type that offers predictable returns, among other advantages, of which three are listed below:
- Boosting Rental Income: Increased inflation might be blamed for rising rental prices. This can result in a rise in net operating income, which can further improve the property’s value. If the property’s worth exceeds the rate of inflation, the investment will not be impeded if they own commercial real estate.
- The Factor of Lease: Lease arrangements for commercial real estate are designed to raise the rent at regular intervals during the lease term. The clause for each asset will fluctuate depending on its property and market demand. If these regular gains continue to outperform the rate of inflation, the relative return will remain positive.
- Scarcity of Real Estate: Space will always be in short supply. Houses, flats, and other structures are built to enhance market supply. However, as supply increases, the room becomes scarce. High demand and restricted supply in dense real estate markets contribute to price rises, which is beneficial to investors.
But, Wait, Aren’t Commercial Real Estate Properties Pricey?
Excited to start investing in commercial real estate? But wait! Aren’t commercial properties expensive to invest in and require crores? They are, after all, expensive and are valued in crores. However, just because Alex lacks crores does not exclude him from investing in commercial real estate. You may begin investing with as little as a few lacs. All of this is possible because of fractional ownership and fractional ownership firms like Assetmonk.
But, what Is Fractional Ownership?
If you wish to invest, that flashy commercial property next to your flat will cost you crores. It is costly and estimated at crores. However, the lack of crores does not preclude you from owning commercial property. Even if you just have lakhs, you can advance. This is possible with partial ownership. For example, Assetmonk allows a person to invest in a high-quality office property for as little as Rs. 25 lakhs.
Fractional ownership is an excellent option to invest in real estate without acquiring real estate and creating passive income. It enables investors to own commercial property and receive all of the benefits of property ownership without having to make the initial investment or deal with current challenges. It’s better suited to high-end commercial real estate with a high-risk profile. It’s also beneficial for a single investor who may be unable to fund the full property. Investors may purchase high-end commercial real estate and generate consistent rental income while building long-term wealth. It is well-liked by institutional investors. It is, nevertheless, becoming a viable investment option for average and individual investors.
A group of investors including you, friends, and strangers can own high-quality commercial space in sections or fractions through fractional ownership. Profits and revenue are allocated to the property’s fractional owners. Fractional ownership alleviates financial stress for a single investor by offering constant income flows and incentives. Furthermore, investors diversify their portfolios by investing in several commercial office buildings in diverse areas.
An increasing rate of return, consistent rental revenue, and capital appreciation are all benefits of fractional ownership. Over the preceding five years, commercial property in India grew at a CAGR of 16 percent. Aside from capital appreciation, investing with reputable tech-enabled real estate investment platforms like Assetmonk may result in a 15% increase in rental yield every three years. It is also integrated into the rental agreement to protect against future inflation, ensuring that your money invested is safe over time.
