Fractional Ownership of Real Estate

Gold and real estate have traditionally been among the most favoured asset classes for Indians to park their savings. Apart from being easy to understand, both of these asset classes also see relatively lesser volatility in their prices, which is comforting for investors.

Investment in real estate, especially for those who have purchased multiple properties, has also turned out to be a fruitful affair for several investors in the past - helped by a steady and significant appreciation in prices.
 

On the flip side, though, this appreciation in prices has also made the purchase or an investment in real estate unaffordable for most people now. Looking for a cheaper option may not be possible for a tangible asset like real estate, and hence fractional ownership of real estate is an option worth considering.
 

What does it mean?

As the name suggests, fractional ownership of real estate means that investors own a certain portion of the said or underlying property, in proportion to the investment they have made. For instance, instead of completely owning a property worth Rs 1 crore, an investor can choose to invest only Rs 5 lakh in the property, which enables them to own 5% of the property.

How is it done?

Real estate investment trusts (REITs) have been around in India for several years now and these are mostly for commercial properties. The units of these REITs are listed and can be purchased on stock exchanges just like equity shares. Some of the listed REITs in India include Embassy Office Parks, Mindspace Business Parks, and Brookfield India Real Estate Trust.

Fractional ownership platforms, meanwhile, allow individuals to invest in properties through several options - these include residential or commercial properties, or existing properties or those under development.
 

The process involves first selecting a platform through which you want to invest, followed by the property you want to invest in.
 

What should you look for?

When choosing a fractional ownership platform, some factors to consider include its past record, the portfolio of properties it has, and whether it complies with regulations of The Securities and Exchange Board of India.

When selecting a property to invest in, you must first decide whether you want to invest in a commercial or residential property. You must also consider the prospects of how much the value of the property can grow over the years, while also keeping in mind whether the property is lucrative for rental purposes and the kind of rental income and yield it can fetch.
 

Why is it beneficial?

The foremost benefit of fractional ownership of real estate is that one can own real estate without blocking a hefty amount, as is the case with traditional real estate investments, especially in metro cities like Mumbai, New Delhi, and Bengaluru.

In the case of single ownership of a property, the entire responsibility of managing a property - including its maintenance, collection of rent, and scouting for tenants - becomes the owner’s responsibility. With fractional ownership, this responsibility is significantly lesser, making the process of earning from these investments easier.
 

A fractional ownership platform also takes care of other details like the profile of the developer and whether or not such titles are clear, making it a relatively hassle-free process.
 

Another advantage of fractional ownership of real estate is that it is an excellent form of diversification of assets, especially at a lucrative cost.
 

What are the disadvantages?

Given that a single property is owned by several stakeholders, decision-making can be a longer and more complicated affair compared to when a single person is in charge of all the decisions.

In such instances, not only can selling the investment property be a more cumbersome affair, but it can also be more delayed as you may not be able to find a similar number of buyers for the property as the number of sellers it has.
 

Liquidity can also be a concern for such investments as selling a real estate property is not as easy as some other investments, which means that these funds are not as easily accessible as some other investments one may have.
 

Overview

The fractional ownership of real estate has been gaining traction lately in the country, especially after The Securities and Exchange Board of India stepped in with regulatory support. Cities like Bengaluru, Pune, New Delhi, and Mumbai are reportedly seeing the highest demand.
 

As with all investment decisions, investors must do their due diligence, including an assessment of their risk appetite and liquidity requirements, before choosing to invest through this medium.