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- India’s real estate industry is going through an alternative transformation; and fractional ownership is at the forefront of it.
- If you’ve been following the real estate sector closely for the last couple of years, you might have come across fractional ownership investment models.
- And while the terms fractional ownership, co-ownership, and joint ownership are often used interchangeably in the real estate landscape; there are some distinct differences between them, which are key to consider before you invest in any commercial real estate investment model.
Fractional Ownership Investment: An Overview
- To put it briefly: fractional ownership investment is an alternative approach to real estate: A number of investors come together and pool their funds to acquire high end commercial real estate; and share the returns off of the commercial property.
- If 5 investors contribute 50 lakh each, they can collectively buy ownership of a 2.5 crore trophy commercial property in a prime location.
- The property will be managed by the fractional ownership platforms (FOPs), and the rental returns will be distributed among the all investors after the FOPs take a small cut for maintaining the property.
How Fractional Ownership is Booming in India
- Valued at $200 billion in 2021, India’s housing market is set to surge to a staggering $1 trillion by 2030, with fractional ownership adding flame to the fire.
- The market for fractional ownership in India was valued at US$ 5.4 billion in 2020. It’s now projected to grow to USD 8.9 billion by 2025.
- Experienced investors are particularly favouring fractional ownership of commercial real estate: it’s flexible, has low entry barriers, and mitigates risk through shared ownership of property.
Read More: Fractional Ownership is Booming in India
Fractional Ownership, Co-Ownership & Joint Ownership
- Fractional ownership terms such as joint ownership, and co-ownership have a lot of similarities but are often confused with each other, and there are some key differences.
- In the case of joint ownership, all the investors have joint ownership of the property, but individually, owners do not have a share right. The owners are more limited in number, and they have an obligation to manage the estate jointly.
- This means that investors cannot dispose of their ownership shares off their own volition, and they need the approval of the other joint owners before disposing their shares in the property.
Co-Ownership
Co-ownership, which is used synonymously with fractional ownership, is more flexible than joint ownership, and gives investors much more leeway when it comes to liquidity. In this model, each owner can dispose of their shares on their own, and independently sell their real estate shares even though other investor-owners might not want them to.
Think Of it as Buying a Vacation Home
- Think of fractional ownership as a timeshare for a vacation home: You want to buy a vacation home near a beach, but don’t want to bear the entire cost and responsibility of maintaining the beach house yourself.
- So you and a group of friends invest in a vacation home, hire someone to manage the property, and take turns of a few weeks or months enjoying the vacation property, letting the person you hired take care of the property during the off season. This is fractional ownership.
- In joint ownership terms, you and your friends would come together, and own the property outright: every decision about the property, from maintenance, to usage, to hiring new furniture would be a joint effort, and responsibilities and benefits will be shared among the joint owners.
Fractional Ownership vs Joint Ownership
| Aspect | Fractional Ownership | Joint Ownership |
| Ownership Structure | Shared investment holdings among multiple investors | Simultaneous property rights held by two or more individuals |
| Entry Barrier | Lower entry barrier compared to full ownership | Entry barrier may vary based on the property |
| Management Responsibility | Managed by Fractional Ownership Platforms (FOPs) | Shared management responsibilities among co-owners |
| Risk and Profit Sharing | Shared among investors after deducting management fees | Shared equally among co-owners |
| Regulatory Environment | Regulated by SEBI under new REIT framework | May not be as formally regulated |
| Minimum Investment Size (Assetmonk) | Rs 25 lakh | May vary based on property and agreement |
| Usage Flexibility (Vacation Home) | Flexible usage during specific times; exchange within a network | Unrestricted access and full usage rights for each owner |
| Professional Management (Vacation Home) | Managed by Fractional Ownership Platforms; covers maintenance and amenities | Shared management responsibilities, may lack professional services |
| Legal Aspects (Co-Ownership) | Clearly defined agreements outlining structure, rights, and responsibilities | Legal structure includes shared rights and responsibilities |
Assetmonk: Leading the Market in Fractional Ownership Investment
- Since fractional ownership has started to create waves amidst the real estate trends in the industry, Assetmonk has stood out as a pioneer in the alternative real estate investment space, especially when it comes to commercial real estate.
- Assetmonk offers unique and attractive opportunities for fractional ownership of prime commercial properties, with a high projected Internal Rate of Return (IRR) and flexible liquidity options for investors looking to create a diversified portfolio through real estate investments.
Conclusion
Fractional ownership and joint ownership both represent two very similar investment models that have quickly found their space in the Indian real estate sector. Joint ownership still retains some sort of traditional real estate appeal; while fractional ownership offers a more structured, regulated and hands off approach, where the fractional ownership platform (FOP) takes care of the acquisition and management of the commercial property and the investors relax and wait for their potential returns.
With FOPs and investment platforms like Assetmonk leading the way, investors looking to make their foray into real estate have the opportunity to explore both models, and embrace the booming real estate investment sector of India.
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Impact of Fractional Ownership On The Housing Market in India
