Fractional Ownership vs. Traditional Investing.
India’s Real Estate Market Current Scenario
Investing in real estate has long been a popular way for investors to build and diversify their portfolios. For many beginners, however, traditional investment options such as stocks, bonds, and mutual funds can be intimidating and inaccessible. A new and exciting alternative, fractional ownership offers investors a special means of diversifying their holdings and gaining access to assets that were previously out of reach.
- CRE is an appealing investment choice that offers distinct benefits and long-term prosperity. India’s commercial real estate (CRE) market is currently valued at USD 33.62 billion and is anticipated to grow to USD 87.57 billion. From 2023 to 2028, the growth is expected to continue at an impressive CAGR of 21.1%. As it continues to grow, new opportunities are emerging in the market.
- What’s also catching investors’ attention is the combination of impressive returns, reliability, and the diversification it brings to their portfolios.
- A growing trend in real estate is fractional ownership, which gives investors a stake in high-value commercial properties. Benefits such as affordability, diversification, and liquidity are provided by this investment model making it a lucrative investment choice for savvy investor’s.
- According to data from Knight Frank, the market size of fractional ownership properties in India is expected to increase at an annualised rate of 10.5%, or 65 percent, from $5.4 billion in 2020 to $8.9 billion in 2025.
Fractional Property Investment
- Investing in fractional properties allows investors to own a share of a property without having to buy the entire property. Investing in fractional properties enables investors to diversify their real estate holdings in their portfolio and invest in properties that might otherwise be beyond their budget.
- According to a recent report by TruBoard Partners, India’s fractional ownership market is expected to grow from Rs 1,500 crore in 2019 to Rs 4,000 crore in 2023.
Benefits of Fractional Ownership:
- Lower Investment Barrier: Requires significantly less initial capital compared to purchasing an entire asset.
- Increased Diversification: Invest in multiple assets across different asset classes, mitigating risk and maximizing returns.
- Professional Management: Experienced professionals handle asset management and maintenance, freeing up your time.
- Access to High-Value Assets: Invest in exclusive properties, artwork, and collectibles previously inaccessible to individual investors.
- Greater Liquidity: Easier to buy and sell fractional shares compared to traditional assets, offering greater flexibility.
What had SEBI proposed?
- The Securities and Exchange Board of India ( SEBI) board gave its approval to a proposal to create a framework for real estate asset fractional ownership. The move by SEBI to establish a regulatory framework for fractional real estate ownership is a powerful indication of the regulator’s faith in this innovative investment option and it strengthens conviction in the model.
- This move holds the potential to create a dual positive impact: it will formalise fractional ownership as an investment class, which will draw a portion of portfolios towards a wider market, and it will increase the supply of hospitality assets to satisfy the growing demand in the travel and hospitality industries.
- Assetmonk recognises and welcomes the diversified options being brought under the regulatory authority which will only lead to more inclusivity and democratisation of the real estate market.
Traditional Real Estate Investment
Traditional real estate investing involves buying and becoming the complete owner of a property. Buying residential or commercial real estate with the intention of renting it out or turning a profit is an option available to investors. Traditional real estate investment requires a significant amount of capital, as well as ongoing maintenance and management.
Benefits of Traditional Investing:
- Direct Control: Investors have complete control over their investment decisions.
- Long-Term Track Record: Traditional asset classes have a long and successful history of generating returns.
- Accessibility: Traditional investments are widely available through various brokerage platforms and financial institutions.
- Established Regulations: Traditional markets are heavily regulated, offering greater investor protection.
Drawbacks of Traditional Investing:
- High Initial Investment: Requires a substantial amount of capital to diversify across different assets.
- Time Commitment: Managing a traditional portfolio can be time-consuming and require significant research and expertise.
- Risk of Loss: Traditional investments carry inherent risk, and the potential for loss is always present.
- Complexity: Understanding the intricacies of different asset classes and investment strategies can be challenging for beginners.
Exclusive Ownership or Fractional Ownership?
- In the past, one had to purchase an entire house or flat in order to purchase real estate. But because tokenized assets are accessible to all, real estate investments no longer have the massive barrier to entry that they did before thanks to fractional ownership.
- This implies that, unlike traditional investments, investors are not required to have good credit or make a substantial down payment in order to buy a percentage of a specific property.
- Consider this: Suppose, let’s say you find a property, and this is just an example, for 500,000,00. For many, this is a substantial amount of money, and they might not be able to obtain it right away or be willing to take that kind of risk. They might, however, have Rs. 25 Lakhs to invest.
- With fractional real estate, they can simply invest 25 lakhs and own a piece in Grade A Commercial Property and earn enticing returns.
Comparison Table Fractional Ownership vs. Traditional Investing
|Diverse range of assets
|Limited capital, hands-off investors
|Large capital, experienced investors
Which is a Better Investment for You?
- The decision to invest in fractional property or traditional real estate ultimately depends on your investment goals, time, experience, and financial situation.
- Fractional ownership might be the best option for you if you want to invest in several properties and diversify your real estate holdings. Traditional real estate investing might be a better fit if you have the money and are prepared to assume the duties of direct property ownership and management.
Choose Fractional Ownership if:
- You have limited investment capital.
- You want to diversify your portfolio with alternative assets.
- You prefer hands-off investing and value professional management.
- You are interested in accessing high-value assets otherwise out of reach.
Choose Traditional Investing if:
- You have a large investment capital and want direct control over your portfolio.
- You have extensive research and investment experience.
- You are comfortable with the risks associated with traditional asset classes.
- You prefer a well-established and regulated investment environment.
Fractional investing, when used by experienced investors, can be a great way to further diversify an existing portfolio by exposing it to a greater range of properties and locations. Fractional ownership can be an excellent way for first-time investors to get started in real estate with the goal of eventually adding entire properties to their portfolio for smaller investments and those who lack the time or experience to manage properties directly.
The Fractional Ownership Model: Why it is Booming in India
- In India, the concept of fractional ownership for luxury assets is gaining popularity as high net worth individuals (HNIs) look for hassle-free premium living. The post-pandemic surge in mobility and leisure travel has led to an increasing mainstreaming of India’s fractional ownership market.
- With fractional ownership, investors can now own a portion of valuable real estate for a much lower price than they would have to pay to purchase the entire property outright.
- Even investors with smaller budgets can invest and own shares in high-value properties in proportion to their investment. Therefore, if you’ve ever imagined yourself as the owner of a prime piece of commercial real estate but believed it was impossible, think again.
- Being able to sell one’s shares at any time makes fractional ownership an extremely liquid investment when compared to traditional real estate.
- For instance, Assetmonk, an alternative investment platform, offers a fractional ownership model where investments are secured and starts as low as 25 lakhs.
- Investing in fractional ownership opens up new avenues for investors and also lowers investment costs and reduces risk.
Fractional ownership offers a compelling alternative to traditional investing, opening up new opportunities for investors of all backgrounds. You can create a profitable portfolio for the future and make well-informed investment decisions by balancing the benefits and drawbacks of both strategies.
Assetmonk is striving to provide smart real estate investment options for the specific needs of investors. For long-term retail investors looking to expand their exposure to the CRE market, Assetmonk’s fractional ownership options offer a high potential earning yield of 14 to 21% annually.