Monday, 19 September 2016

Gen Y turns to 'virtual' space leasing for investment

Referred to as 'undivided share of a given floor' in realty parlance, this virtual space leasing model ­ already popular in metro cities.



HYDERABAD: It's a new wave of investment that's sweeping Hyderabad's iPad-toting Gen Y populace off its feet these days. With a 'savings' deposit of Rs 10 lakh to Rs 12 lakh tucked neatly away in their accounts, this dividend-driven clan is giving a miss to the latest Honda 'hot wheels' to instead park their moolah in 'virtual' properties. Location: some corner (literally!) of a swank commercial tower along Hyderabad's IT corridor.

Here's how it works. Referred to as 'undivided share of a given floor' in realty parlance, this virtual space leasing model - already popular in metros such as Bengaluru, Mumbai and Chennai - allows an individual to own a small piece of property within an expansive building housing offices and private businesses.The rent earned from these firms is transferred to the owner depending on the size of herhis property, which can be just about 100 sft! For instance: a 100 sft space in a building leased at Rs 40 per sft attracts a rent of Rs 4,000 per month.

"So, instead of buying a house that can cost anywhere upwards of Rs 45-50 lakh, a young investor can spend a smaller amount and be part of a group of people who have together bought an office space. This assures a stable rental income every month and the return on this investment - anywhere between 6% and 6.5% of the total investment - is much higher than the 2%-2.5% return that residential properties offer," explained Sandip Patnaik, managing director, Jones Lang LaSalle (JLLHyderabad), a global real estate consultancy firm. Recommending it to the MNC-crowd, Patnaik said the trend is here to stay.

It was in early 2015 that this investment model made its foray into the local `hi tech' market, with Bengaluru-based major developer Puravankara Projects Ltd throwing open the doors of `Purva Summit' in Kondapur to buyers. Total area up for grabs: roughly 3 lakh sft. Subsequently, city-fir m Kapil Group, through its venture `Kapil Towers' in Financial District, added another 2.5 lakh sft to this supply. "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 sft) and earn a steady monthly income. Also, we assure a 15% escalation in rent every three years," said a senior executive with Kapil Group, while dismissing fears of fraud among some market analysts. "It is just like buying any property - complete with salelease deeds," he added.

Commercial rents in the area currently stand at Rs 40 per sft.

While chartered accountant Ritesh Mittal agrees it's a `wealthy' proposition, he does sound a word of caution. "Because an area is shared by multiple people and an individual doesn't exactly know which part of the property shehe 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 said, confessing to many `friends' and `clients' turning to such investments of late.

"Also, those opting for it must be certain they are in it for long-term monthly income. Those looking at short-term holding (liquidating funds within a few years) must stay away from it. Otherwise, they'll never recover the capital amount," he added.

Predictably, biggies like Puravankara are targeting only `mature' investors with at least one home in their kitty. And that's also because the company's rate card for this property, which started at Rs 6,500 (base price) per sft last year, has already touched Rs 7, 380 per sft.

"Yet, it's a profitable model because the rentals in this part of Hyderabad have already touched Rs 55-60 per sft," said Ashish Puravankara, managing director of the firm. He added: "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."