REITs, Fractional Ownership, Best for Beginner Real Estate Investors, Says Mananki Parulekar of Claravest

In an environment where global uncertainty continues to roil equity markets, novice real estate investors are increasingly looking for safer alternatives to hedge against inflation.According to Mananki Parulekar, co-founder of Claravest Technologies, diversified real estate exposure doesn’t have to start with buying an entire brick-and-mortar property.

In a conversation with ETMarkets’ Kshitij Anand, Parulekar believes that REITs and fractional ownership platforms offer the most practical, research-backed entry point for new investors, allowing them to start small, reduce risk and take advantage of institutional-quality opportunities without the burden of large upfront capital or complex property management.Parulekar adds that with retail investors ideally investing 10 to 20% of their portfolios in real estate by 2026, structured products such as REITs and fractional deals will play a crucial role in democratizing access to quality real estate investments. Edited excerpts –

Q) How should investors think about allocating capital to real estate within a diversified portfolio in 2026?

A) The recent geopolitical uncertainties have shown the impact this has on the stock markets. This asset type is highly volatile and directly proportional to changing global dynamics.

During such a period, private investors need to protect their portfolios by adding real estate to them. An inflation hedging asset class that is not (less) volatile and has proven steady growth over a long period of time. Investors should consider investing 10% – 20% of their investment portfolio in real estate.

This number will change based on a person’s age, risk profile and understanding of the real estate market. For investors just entering the real estate market, products like REITs or fractional ownership would work better because investors can start small and invest in research-backed, private deals without having to spend a huge amount of money.

Q) What percentage of one’s portfolio should ideally consist of real estate, especially for those already exposed through fractional real estate holdings or REITs?

A) In India, the HNIs and UHNI allocate around 30% – 35% of their investments in real estate as per the 2024 Knight Frank wealth report. This is also because HNIs and UHNIs get early access to real estate deals with strong negotiated prices; they have access to foreign real estate investments, diversifying their portfolio based on geography, ability to exert influence and resources available to them for due diligence and research.

For retail investors, apart from the above 10% – 20% exposure, investors can take more than 10% – 15% exposure in real estate, based on the asset, location and growth potential of the investment.

Q) How does real estate compare to equities and fixed income in terms of risk-adjusted returns in the current macro environment?

A)

Shares:

The Indian stock market has delivered a CAGR return of 12.4% over the past decade. However, the asset class is volatile and performs well over a longer term. The easy liquidity of this asset class is a major advantage.

Fixed income:

Fixed income always offers a low risk, low return strategy. It is an asset class that benefits income maintenance; however, it is not a good asset class with higher inflation. Unless the fixed income return (after taxes) is higher than the inflation rate, people lose the value of their money.

Property:

Real estate is an inflation hedge asset; it’s not as liquid as stocks or fixed income, but it’s an asset class that, when invested in the right place over the long term, can give you exponential returns. This asset class is less volatile than equities, but requires significant resources for maintenance, taxes and due diligence.
Some examples of real estate returns are:

Residential real estate (annual): Rent: 3% – 5% + Appreciation: 8% – 15%

Industrial/Commercial (Annual): Rental: 6% – 7% + Appreciation: 7% – 10%

Real estate funds (annual): 8% – 15%

Q) How are rental yields and capital growth prospects evolving in metropolitan versus second-tier cities?

A) The trends in rental yields and property valuation are quite different in metropolitan cities (tier 1) and tier 2 cities with good connectivity (to tier 1 cities) and infrastructure development.

The residential assets of major cities show stable returns of around 2% – 4%, while rental yields in Tier 2 cities can deliver returns of 4% – 6%, given the location of the property (for example: assets around emerging technology parks or airports receive high rents through corporate leasing and a lower purchase price).

Real estate appreciation in metro cities is generally around 8% – 10%, while in ‘tier 2’ cities, where a new bridge or highway exit is on the way, the appreciation can be between 10% and 15%.
In short, metros offer stability, but the real growth story is in second-tier cities.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own. These do not represent the views of the Economic Times)