Asset Leasing For Construction And Infrastructure Projects: A New-Age Investment Opportunity

The Indian construction industry encompasses the Real Estate and Urban Development segments (including Public Infrastructure, Sanitation, Water Supply, Healthcare, Schools and Colleges, and Urban Transport). The construction industry receives prime attention from the Indian Government. The 100% FDI under the automatic route encourages Foreign Investors to invest in infrastructure and development projects¹. Alternative investment options available only for High Networth Individuals (HNIs) are now accessible due to the rapid growth of Fintech in India.

According to the Budget 2023-24, the government has increased its infrastructure investment outlay by 37.4 percent over 2022-23². Effective capital expenditure, at INR 13,70,949 crore in the budget estimate for 2023-24, shows an increase of 30.1 percent over 2022-23. The expected growth in the construction sector has opened up new investment opportunities, such as Asset Leasing for individual investors. In this blog, we will explore Asset Leasing investment and learn how it is a lucrative investment opportunity.

Overview Of Asset Leasing For Construction And Infrastructure Projects

Alternative Investment opportunities are highly sought by investors who expect double-digit returns. Asset Leasing provides better returns than Fixed Deposits, generally from 6% to 8%. It allows investors to invest in non-market linked instruments to generate a passive monthly income. You can invest in multiple physical assets (movable or immovable) like real estate, furniture, electronics, equipment, etc. 

Asset Leasing is an agreement between a Lender (a lessor) and a Borrower (lessee). The lessor can be a company or an individual that leases the asset to the lessee for a specified period for a specific cost. The lessee can gain exclusive access to the asset and make periodic payments to the lessor according to the lease terms. 

Why Asset Leasing Is A Lucrative Investment Opportunity?

Equipment for construction projects is expensive, but infrastructure companies need not buy these assets. With careful planning, businesses can spread the purchase cost and get financing through Asset Leasing. Businesses that save capital investment through Asset Leasing can operate with fewer assets and gain financial leverage. Due to this flexibility, many businesses are inclined towards choosing this model. 

Investors can benefit from Asset Leasing by co-investing in assets leased to solid businesses. Retail investors, too, can invest in Asset Leasing to generate a steady income backed by solid assets.

Advantages Of Asset Leasing For Investors

The minimum ticket size for Asset Leasing is now affordable for retail investors, as top-rated fintech platforms provide low ticket sizes. Investors can enjoy up to 20% returns based on the type of assets they choose. Some of the benefits of Asset Leasing for investors are:

• Steady Passive Income: With lease investing, investors can get higher pre-tax returns and a fixed monthly income. 
• Strong Collateral: All Asset Leasing investment opportunities are backed by strong collateral, which is the asset itself. If the lessee defaults on repayments, the lessor can seize the collateral and recover their investment. 
• Less Volatile: Lease investment is not dependent on market forces, thus protecting the investment from market fluctuations. 
• Portfolio Diversification: Investors can mitigate risks better with lease investing. Alternate investments provide better portfolio diversification for generating passive wealth. 
• Tax Benefits: Depreciation on leased assets is claimable, allowing investors to enjoy lower tax rates.
• Range Of Choices: Many manufacturing powerhouses in India lease equipment to operate asset-light. It provides multiple choices for investors.

Market Analysis And Potential Of Asset Leasing For Construction And Infrastructure Projects

The global Asset Leasing market will grow at a CAGR of 13.46% from 2023 to 2032³. Construction companies are keeping up with the Asset Leasing trend to reduce the burden of managing and maintaining equipment. This allows these businesses to focus on core operations. Leasing assets helps start-ups and companies with limited resources successfully use technological advancements to complete large infrastructure projects. 

Rapid urbanisation and industrialisation in India support the regional growth of the Asset Leasing market. In India, the increased demand for infrastructure and real estate projects fuels the growth of the construction industry. Its contribution to the Indian GDP will be 13% by 2025⁴. Multiple government policies, affordable housing projects, national infrastructure pipeline (NIP) projects, and urban transformation strategies support infrastructure development throughout the country.

In 2021, the Parliament passed a bill to launch the National Bank for Financing Infrastructure and Development (NaBFID) to support the growth of the construction industry⁵. As Asset Leasing proves to be a valuable option to reduce capital investment, more and more construction companies lease assets. This directly leads to Asset Leasing investment growth that can give retail investors better returns.

Considerations Before Investing

Investors must perform due diligence before investing in Asset Leasing. Some of the factors you must consider are:

• Remaining Value Of Assets: Before investing in Asset Leasing, investors must understand the worth of the asset, which is the residual value. The purchase price of an asset is not a clear indicator of its residual value, as the usage of assets determines their value in the construction industry.
• Deal Tenure: As with any investment opportunity, the deal tenure determines the passive income for investors. Lease agreements may not provide liquidity if you exit the deal early. Generally, Asset Leasing contracts extend for several years. 
• Financial Statements Of The Company: Returns on Asset Leasing depend on the company involved in the leasing contracts. One must always research the finances and history of the company before investing in it.
• Ticket Size: As a retail investor, you must choose investment platforms that support a smaller ticket size. The returns you get vary based on your investment. 

Conclusion

Asset Leasing Investments allow investors to diversify their portfolios at minimal risks and enable investors to get better returns without tying up a huge amount of capital. Lower volatility and reduced risk due to asset collateral make asset leasing a lucrative investment opportunity, especially with India's buoyant construction sector growth. 
Do you want to explore these profitable alternative investments, such as Asset Leasing, with high returns? Grip offers products like Lease X specifically curated for investors like you. Check out Grip and start exploring these Alternative Investment Opportunities.

References:

1. Invest India  <https://www.makeinindia.com/policy/foreign-direct-investment> 
2. Ministry of Finance <https://www.indiabudget.gov.in/doc/Budget_at_Glance/bag1.pdf> 
3. Precedence Research <https://www.precedenceresearch.com/enterprise-asset-leasing-market> 
4. The Economic Times <https://economictimes.indiatimes.com/wealth/personal-finance-news/realty-sector-can-double-its-share-in-gdp-to-13-by-2025-cbre/articleshow/21729051.cms?from=mdr>
5. National Bank for Financing Infrastructure and Development <https://www.nabfid.org/history> 

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