Commercial Realty Gaining Ground with Online Platforms
Kunal Moktan, Co-Founder and CEO, PropShare Capital
What are the growth drivers for Commercial Realty?
Supply of quality engineering talent, an English-speaking workforce and rule of law has made India the favoured offshoring destination for some of the largest corporations in the world, so much that most of them now operate their biggest campuses outside of their home countries in India. This in turn has evolved the commercial real estate market as more and more developers see the merit in building large Class A office parks for these occupiers.
How has been the historical performance of Commercial real estate?
In the last 15 years, 500 million square feet of Grade A office has been developed and occupied by domestic and international tenants mostly in the tech hubs of Bangalore, Pune, Gurgaon and Hyderabad. Today IBM is one of the first blue chip multinationals to employ more people in India compared to its home country – the United States. One third of its workforce or 130,000 employees are based out of Information Technology Parks in Bangalore, Pune and NCR.
What are the factors that make Commercial real estate attractive for investors?
Monetizing these assets has become easier as the government watered down foreign investment parameters in the sector allowing international real estate funds, sovereign wealth funds and pension funds to participate in income generating real estate. The retail investor on the ground however, has largely been left out of this product, leaving them with a two-dimensional investment option of a fixed interest bearing and fully taxed Fixed Deposit and a volatile stock market.
This is now changing with the emergence of effective tech-enabled platforms for investment in the commercial real estate space that underwrite tenanted Grade A office buildings and offer them to investors at ticket sizes, starting from INR 25 lakhs.
These innovative platforms are user-friendly and effective products that provides significant yield and an equity upside on capital appreciation. Furthermore, the tenanted office provides returns but are inaccessible to the retail investor. This is due to large ticket sizes of 10-50 crores that lack the liquidity and the inability to quantitatively analyse commercial lease structures.
The role of online platforms
The tech-enabled investment platforms have disrupted the commercial real estate segment with an interesting pattern that is observed through proportional growth in the number of NRI investors by 33% as compared to 67% of resident Indians.
This organic growth in the number of NRI investors in the tech-enabled CRE platforms is essentially because they have the money but not the time to get involved in sourcing, negotiating, deligencing, closing, managing and exiting the investment.
As a result, with the support of cutting-edge technology combined with boots-on-the-ground valuation approach enables to bring the most lucrative opportunities that are simple and hassle-free for an investor. This process is conducive to a great extent that a transaction can be closed using smart contracts to digitally sign agreements, enabling investments within minutes and providing access to a state-of-the-art dashboard to track all investments on one platform. In addition, the entire investment, management and sale process is transparent and simple.