Fractional Ownership : A Promising Real Estate Investment Trend In India
The current catchphrase in the Indian real estate market is fractional ownership. Fractional ownership helps to democratise the real estate market. Now, a private investor can make investments in real estate that was previously out of reach but was extremely lucrative. Although fractional ownership of real estate has long been popular in the United States and Europe, it is becoming more popular in India. Let’s delve deeper into this developing tendency.
Fractional ownership: what is it?
Fractional ownership is simply partial ownership in expensive business buildings that are manage collectively by a number of investors with pooled funds. Otherwise, private investors would not be able to engage in these big business properties. The property management business encourages retail investors to make an initial investment and profit from rate growth.
Let’s use an illustration to better comprehend this. A gang of investors is in charge of a Rs 20 crore industrial building. They welcome retail investors to make minimal investments of Rs. 10 lakh and receive set returns based on those investments.
A variety of properties are posted under fractional ownership on an IT-enabled website. Investors are then asked to select the portions according to their preferences and capacity after the minimal ticket size has been determin.
Fractional Ownership: A Growing Trend
Investors are still looking for new business opportunities in the post-coronavirus era. Real estate consistently outperforms more conventional investments like government bonds, gold, and fixed deposits. Retail investors are discouraged from engaging in expensive business real estate properties, however, due to the high costs and complicated investment process.
Real land with fractional ownership can be useful in this situation.
Up until recently, the industrial real estate market was the exclusive domain of powerful corporations and affluent investors. Both middle-class and retail investors were reluctant to engage in big commercial ventures and were unable to do so. Retail investors are now taking part in these high-potential markets, though, thanks to the advent of the fractional ownership tendency in India.
The Indian business real estate market is anticipated to expand at a compound annual growth rate (CAGR) between 2023 and 2028, according to a study by analytics company Mordor Intelligence. The demand for grade-A workplaces and coworking areas will increase during the post-corona era. In reality, over 700 million square feet of Grade A workplaces are anticipated to be absorbed between 2022 and 2023.
Opportunities for leasing will arise as a result of the increasing demand for business property and workplace space. The rise in possibilities for fractional ownership and the rise in demand for commercial real estate are closely link.
Fractional Ownership
The fractional investment ownership structure has given investors new possibilities, according to a JLL study. They can now imagine having a piece of a sizable commercial building and making money that has room to grow. Despite the Covid-19 pandemic, India had progressed fractional investment transactions worth 350 million.
The owner of a fractional property may sell his or her share at any moment, which is an intriguing truth about fractional investment ownership. However, the Title of the subject land is dependent on the timeline of payments.
The notion of fractional ownership in real estate is novel and growth-oriented. It incites builders of high-quality properties designed especially for this type to introduce more of them. Additionally, it offers real estate agents and intermediaries a chance to generate lucrative income.
Benefits of Real Estate Fractional Ownership
Although it is a relatively new business class, fractional investment is a growth-oriented industry that is steadily gaining in popularity. The following are some of the main advantages of fractional ownership:
- Commercial real estate business offers excellent return on investment opportunities for retail buyers because of its high appreciation potential.
- The real estate sector is rapidly going digital, making monitoring a fractional stake easy.
- It makes Grade A property investment opportunities possible for retail investors.
- Fractional Ownership allows you to buy a fraction of a large-scale property.
- Fraction Ownership Management companies make it easy to collect rentals and help in tenant management.
- Investors can diversify their portfolio from traditional investment instruments such as FD, Gold and residential properties.
- Fractional owners may lease their part of the property for handsome returns every month.
- Unlike REITs, fractional Ownership provides you with the freedom to choose your share of the property
- Non-Resident Indians or NRI investors find merit in investing in a professionally managed environment and prefer fractional Ownership of rent-generating assets
Major Indian Companies Engaged in Fractional Investment
The idea of fractional investment ownership has quickly gained traction among real estate buyers. The following are some of the top businesses engage in fractional ownership:
| Major Companies involved in Fractional Ownership in India | ||||||
| hBits | Myre Capital | Property Share | YieldAsset | Asset Monk | Strata | PropReturns |
REITs versus fractional ownership
Real Estate financing Trusts are a more well-known option to partial ownership when it comes to real estate financing. (REITs). REITs function like investment funds. They engage in real estate that produces rent and is lucrative by pooling money from various sources.
REITs enable investors to make real estate investments without truly possessing a building, in contrast to the Fractional Ownership plan.
The difference between REITs and Fractional investment can be summed up as follows-
| Difference Between REITs and Fractional Ownership | |
| REITs | Fractional Ownership Real Estate |
| REITS are controlled by the Securities and Exchange Board of India (SEBI) | Fraction ownership of real estate is not SEBI controlled. |
| It is mandatory for the investors to invest 80 percent of the money in income generating assets. | There is no such compulsion. The money can be invested into both ready as well as under-construction properties. |
| No maintenance charges or upfront cost is charged from the investors. | Brokerage and maintenance costs are charge from the investors. |
| Investors cannot choose the type of property to invest in. | The investors have complete control over the type of property |
| Minimum investment can be as low as Rs 20-50 thousand | Minimum investment is generally in Lakhs |
| REITs are comparatively liquid and returns are consistent | Properties are high potential but the returns can fluctuating |
In a partial ownership arrangement, the investor is aware of both the location and the kinds of properties that his or her money is invested in. In contrast, expert administrators pool investor funds in the case of REITs and make investments in lucrative real estate properties that generate rent. General, the REITs forbid you from picking the property you want to engage in.
What are the risks involved in fractional ownership of real estate?
Real estate fractional ownership, also referred to as co-ownership or shared ownership, occurs when two or more people or organisations collectively own a piece of land. While investing in real estate through fractional possession may be more affordable, there are dangers. The following are some possible hazards of real estate partial ownership:
- Co-owner disagreements: Co-owners may disagree on how the property should be use, administered, or when it should be sold. Co-ownership disputes can be expensive, time-consuming, and necessitate the involvement of a lawyer.
- Fractional ownership of real estate is typically less liquid than buying in openly listed securities, which means that it might be challenging to sell your portion of the property when you want or need to.
- You might only have a small amount of influence over the land as a co-owner. All co-owners may need to concur on a choice before it can be made, which could cause delays and conflict.
- Costs associated with maintenance and upkeep: Co-owners are accountable for keeping and fixing the property. The onus is place on the other co-owners if one is unable or reluctant to cover these expenses.
- Market risk: The property’s value can change depending on market circumstances, like with any investment, which could cause a loss in value or make it difficult to sell your share.
- Management risk: There is a chance that the property will not be correctly manage or that the managing party will have conflicts of interest, depending on the management structure of the fractional proprietorship.
Before making a fractional proprietorship real estate investment, it is crucial to conduct extensive study and comprehend the advantages and disadvantages of this strategy. It may also be helpful to speak with a finance or real estate expert.
Points to Consider before Fractional Investment in Real Estate
Investors should take into account a few important factors before investing in partial Ownership because it is a relatively new financial vehicle.
- Through Research and Background Check- Fractional Ownership is a comparatively new form of business, despite having a growth-oriented mindset. Investors must conduct extensive due diligence and character checks before choosing a Fractional Ownership associate or company. The investors must investigate the credentials and financial standing of important investors. A squad that can support the facilitator monetarily is require.
- Permissions and Legality- Investors should confirm that the facilitator is authorise to operate as a coordinator of fractional investments before making an investment in this field. The likelihood of deception rises due to the size of this expenditure.
- Easy Exit and a Tech-Enabled Environment: Investors must search for a fractional investment chance where the administration is tech-enabled and where the investment can be monitor online. Investors can proceed more easily because there are simple exit choices and no secret provisions.
- Get the Best Deal: Bargaining is a skill that is pleasant to have and is particularly effective for seasoned buyers. You must haggle if you have chosen a company that specialises in fractional ownership. Try to negotiate the biggest reductions you can, as big undertakings often have room for price concessions.
In conclusion, while fractional ownership real estate may be a novel idea in the Indian real estate market, it has offered retail investors a cutting-edge chance. Large-scale business real estate assets have become accessible to private buyers thanks to partial ownership. Small buyers can also profit from investing in properties with high yield potential, in addition to NRIs and HNIs. Before making a purchase, the buyers must be careful and thoroughly investigate the facilitator.
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