By Amrita Singh
‘A Diversified Portfolio’ is the financial equivalent of ‘Don’t put all your eggs in one basket’. Diversification is the process of spreading investments across different companies, industries, sectors, asset classes, geographic regions and time frames to reduce the overall risk of an investment portfolio. By holding a variety of investments, the poor performance of any one investment can be potentially offset by the better performance of another, leading to a more consistent overall return.
In real estate, investing in a single property can expose investors to significant concentration risk. What if the local economy slows or infrastructure projects are delayed or demand weakens? It can affect the value and rental potential of property in question. A smart way to mitigate this risk is to invest in multiple properties across different cities in India.
Referred to as geographical diversification, this works because different cities have different economic engines. For example, tech and corporate expansion drives the economies of Bengaluru and Hyderabad; Chennai is a manufacturing and tech powerhouse; Mumbai’s economy is driven by financial services, port-based trade, the entertainment industry and the limited supply of developable land. Delhi-NCR has a diverse corporate economy and is undergoing an extensive infrastructure transformation.
This is important because these economic engines may not slow down at the same time. If hiring slows in the IT sector and weakens housing demand in Bengaluru, growth in the manufacturing sector could support residential demand in Chennai. Similarly, infrastructure development and business growth could drive demand in Delhi-NCR even if another city’s property market is experiencing an economic slowdown. Therefore, diversification does not mean simply owning properties in various locations - an investor must spread their exposure across different drivers of economic growth so that the performance of their real estate portfolio is not dependent on a single city’s fortune.
The problem is that geographical diversification in traditional property ownership means buying entire properties in several cities. This requires a substantial amount of capital and is not possible for everyday investors. But the days of needing to purchase an entire property to invest in real estate are past. Now, with digital real estate platforms like Alt DRX, that allow tokenised fractional ownership, investors can own portions of a property, get proportional rental income and benefit from its value appreciation. So instead of funnelling all their money into a single property in one particular city, investors can spread their available capital across multiple prime properties and cities. Alt DRX makes tokenised fractional ownership accessible at the low entry point of Rs. 10,000, making diversification in real estate possible with much less capital than is needed to purchase one flat!
To conclude, geographical diversification reduces concentration risk and the overall risk of a real estate portfolio. Fractional ownership gives everyday investors an accessible way to build a diversified real estate portfolio consisting of premium properties across India’s major growth markets with their different economic engines.
