Alternate asset classes in real estate: Think beyond brick and mortar
Authored by Pratik Kataria, Director, Sainath Developers and NAREDCO Committee Member, Maharashtra
India's investment landscape has evolved significantly over the years giving savvy investors several alternative asset classes to diversify their portfolios. However, when it comes to Real Estate, most retail investors failed to see beyond the brick and mortar. Real Estate, nowadays, offers investors, including retail investors, immense diversification opportunities within their real estate portfolio. These opportunities are not only less complex but are also better regulated allowing investors to park their funds in high-growth assets that promise better returns and regular income, Real Estate Investment Trusts (REITs) is one such opportunity for investors.
REIT promises a pie of India’s fast-growing sector with a minimum investment of buying a share of the REIT listed on the bourses. Imagine owning a part of a real estate project by shelling out a few hundred bucks!
REITs pool funds from multiple investors to fund income-generating commercial properties and distribute the income so generated among its investors. REITs thus allow an investor to ‘own’ not one but several income-generating commercial properties such as office spaces, retail malls, and warehouses. REITs are perhaps the only investment vehicle that gives retail investors access to the pricey commercial real estate market sans significant capital investments.
InvITs function the same way as REITs but collect funds from investors to invest in infrastructure projects such as roads, highways, power plants, and renewable energy assets. Investors are paid by InvITs through the returns generated by these vital infrastructure assets allowing them to get stable and predictable income. Until InvITs hit the market, retail investors had extremely limited options to participate in India’s infrastructure development and profit from it.
Peer-to-peer (P2P) Lending platforms are another option that has gained popularity as an alternative fixed-income investment in the country. Though such platforms are not exclusively for Real Estate, many borrowers often use them to fund their Real Estate purchases. These platforms allow individuals to borrow money directly from lenders, bypassing traditional financial institutions. A retail investor in such a platform is essentially a lender who earns a fixed interest higher than fixed deposits by lending money to borrowers on the platform. A lender (investor) can earn as high as 15% interest per annum but the investment comes with the risk of borrower default.
Another way to exploit the full potential of real estate is to invest in commodities, particularly those that are important for the sector like iron and steel. Commodity investments are not for the novice, but retail investors can still get to be part of the commodity growth story with limited risk by opting for commodity funds. A focus on funds that invest in commodities which are in high demand in Real Estate will help investors profit from them as Real Estate surges.
Venturing beyond the obvious in Real Estate opens up diverse investment avenues to mitigate risk and manage volatility, offering transparency and liquidity unmatched by traditional Real Estate. However, exploring alternate asset classes for potential rewards requires prudent consideration of the safety risks involved.
Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.