The Emergence of the Virtual Space Leasing Model
July 2016

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There is a new breed of Gen Y investors these days – the ones that are dividend-driven and would rather forgo their dream of the latest wheels that just hit the market. With savings anywhere between Rs. 10 to Rs. 12 lakhs neatly tucked away in their books of accounts, these tech-savvy investors would rather park their monies in ‘virtual’ spaces in a commercial office building, than buy a house that would cost on an average anywhere between Rs 40 to Rs 45 lakhs.

 

How does this work? In real estate jargon, this is referred to as the ‘undivided share of a given floor’. Explained from the common man’s point of view, this is an investment opportunity which allows multiple investors to own independent small pieces of an office space, within a larger commercial building that houses offices and private businesses. The size of a space owned can be as small as a mere 100 sq. ft., and the rent earned from the corporates occupying the space is transferred directly by the developers to the owner of the space.

 

A trend that made inroads first in early 2015, this one seems to have caught on in hi-tech cities such as Hyderabad and Bengaluru and to a certain extent in Mumbai too, where commercial space is not just available at a premium but is equally hard to come by. Developers assure a stable rental income each month, with a return of 6% to 6.5% on their investment. Compare this to the meagre 2% to 2.5% ROI that residential properties offer, and this investment model wins hands down.

 

Companies such as Bengaluru-based Puravankara Projects Ltd and Kapil Group in Hyderabad are throwing their doors open to this investment model. According to a senior executive with Kapil Group “This works well in a city like Hyderabad that’s fast becoming a hub for MNCs. An individual with just about Rs 10 lakh to spare for investment can buy a space in our premises (minimum size: 120 sq. ft.) and earn a steady monthly income. Also, we assure a 15% escalation in rent every three years”. “It is just like buying any property – complete with sale/lease deeds,” he added.

 

But, as with every growing market trend, caution is advised here too. Wealth advisors and tax consultants agree that this is certainly a worthwhile proposition, but it does come with its share of vagaries. Chartered account Ritesh Mittal advises, “Because an area is shared by multiple people and an individual doesn’t exactly know which part of the property she/he owns, the credibility of the developer (from whom one is buying) becomes very important. The documents must be legally vetted and all transactions between parties must be completely transparent”. Mittal also recommends that those investing in this model should do so from the point of view of a long term investment. Short term acquisitions will not be successful in recovering the capital amount, eventually leading to losses.

 

Developers such as Puravankara are going all out to target the ‘mature’ investor. A mature investor would be one who has at least one home/ real estate asset in his/ her investment kitty. That does not come as a surprise, considering the average base price at Purva Summit at Kondapur, Hyderabad already seems to have crossed Rs 7000/- per sq. ft. and rentals in Kondapur are in the bracket of Rs 55 to Rs 60 per sq. ft. Ashish Puravankara, Managing Director of Puravankara Projects Ltd. sums it up perfectly, “In fact, contrary to what many believe, this concept has generated tremendous interest in Hyderabad, where supply is still limited. Going by that, we have now launched a fresh floor for leasing in our seven-storied building.”