Fractional ownership is a relatively newer idea for Indian investors, which also makes it subject to speculation. As misconceptions breed around the topic, more and more people distance themselves from the investment class for their disadvantage.
Fractional ownership is an investment approach where the cost of the asset and risk associated with it is split between individual shareholders. As all shareholders split the asset prices and benefits, this makes the investment comparatively risk-free.
It is a common and reliable investment option for expensive assets such as aircraft, yachts, and commercial real estate properties and projects.
Despite the many fractional ownership benefits, a wary investor will always look for the cons of investing if they don’t know the asset class so well, and we understand that.
So here we will break down the top four of the most famous fractional ownership myths for you.
Fractional ownership vs. Timeshare-let’s know the difference
Fractional property ownership and timeshares are similar in the real estate industry. The only similarity is the joint ownership of property. Traditional timeshares provide you with the right to utilize the property, but not a deeded stake in the property itself. Owners of some timeshares are offered points that can be used at other properties managed by the same firm. The cost of a timeshare depends on how many points you buy.
The key distinction between fractional ownership and a timeshare is the distribution of actual equity. In a fractional ownership arrangement, the buyer owns a portion of the property’s equity. If the value of the property rises, the fractional owner’s piece of the pie rises in value as well. The ownership of a timeshare is not shared. The owner buys only a few weeks or months of enjoyment from a property, and the value of these weeks or months does not fluctuate with the property’s worth. The principal owner still owns the title. Let’s look at the fundamental differences between fractional ownership and timeshare properties in detail.
|Ownership||Fractional ownership, as the name suggests, is ownership of the property, and you earn the profit and losses that the property earns as well.||In a timeshare, on the other hand, only provides investors with rights to use the property for a specific period of time.|
|Cost||Fractional properties have a higher cost because you are making a purchase.||A timeshare holiday home costs lesser because it is similar to renting, and you have not purchased any ownership rights on the property.|
|Capital appreciation benefits||As this investment option includes ownership of property, it gives two-fold benefits, one could be the rent you earn on your property or use it for yourself and the other is the capital appreciation.||In a timeshare, you do not enjoy capital appreciation benefits.|
Fractional ownership vs. Timeshare- which is the ideal option for you?
A timeshare is an arrangement in which many people buy the right to use an asset and agree to use it at specific times throughout the year. Co-users determine the times of the year when each user has access to the property, allowing one to enjoy the benefits of a vacation house without having to make bookings every year.
Fractional ownership, on the other hand, is a frequent financial arrangement for owning expensive assets, such as a vacation home. This notion entails the split of property into units, such as suites, and the ownership of each unit by a separate owner. In simpler terms, each owner owns a piece of the property’s title.
Fractional ownership permits owners to utilize the property for a certain amount of time, which is typically significantly longer than the timeshare period. Both constructions include recurring expenses for the property’s upkeep, and taxes and insurance.
The following are the key distinctions between the two concepts:
One significant distinction between the two notions is that timeshares typically only provide the ability to use the property, whereas fractional ownership always includes ownership rights.
- Right to sell or transfer:
Because fractional ownership entails ownership of property units, that owners have the right to sell or transfer the asset to their beneficiaries and heirs. In most cases, timeshares do not provide the ability to transfer ownership.
Timeshare properties see more wear and tear than fractional ownership properties since they are utilized by more people. Each party uses it for one or two weeks per year. As a result, fractional ownership provides a more relaxed and exclusive asset experience.
Vacation properties purchased through a timeshare are less expensive than those purchased through fractional ownership. This is because timeshares provide access for a shorter period than fractional ownership. In addition, the customer that drives demand for each of these structures differs. Parties interested in fractional ownership tend to be more demanding and want higher returns. Parties interested in fractional ownership are typically more demanding, seeking higher-quality, customized services as well as investment benefits, and are willing to pay more for them.
- The benefit of capital appreciation:
As fractional ownership includes property ownership, it has the added benefit of capital appreciation. When the value of an asset improves, the value of the unit owned by an individual owner rises as well, making it a great investment opportunity. Timeshare, on the other hand, does not provide such a benefit because it normally just includes the right to use the property.
The desire to have affordable holiday alternatives while avoiding the hassles of scheduling is the primary motivation for people who purchase timeshare rights. It’s a cost-effective alternative to staying in a hotel. Those who choose fractional ownership, on the other hand, are motivated by a desire to own luxurious holiday houses or the potential for investment gains in such a property.
It is hard to get rid of fractional real estate property
As fractional ownership is most widely supported and promoted in the CRE sector, or large real estate properties, believing the investment to be illiquid is pretty easy. But that is a myth.
Fractional ownership might give you part ownership in a property, but still, what you have, is a share of it. And selling off a share isn’t as troublesome as selling off a real estate property.
Also, the platform you invest through plays a very crucial role in determining the liquidity of your asset. For instance, Assetmonk provides the investors with an opportunity to internally sell their share to the company or any other investor that makes the process lesser time-consuming and the investment, highly liquid.
Fractional ownership for personal use
Many myths revolve around this point, some believe that fractional ownership is only for personal use and others don’t know the terms and conditions involved with using the property personally.
You can use fractional property, for personal benefits as well as commercial asset building.
Fractional Ownership in CRE is complicated
Fractional ownership is mostly approached by people from the middle-class background or other individual investors, as middle-class people, we have, for a very long time, relied on FDs, PPFs and Mutual Funds, even the closest we might have come to real estate investment must have been getting your own home.
And so the concept of fractional ownership might seem slightly alien and very much complicated to a lot of o investors. I have been there too, but to put it bluntly, the process is pretty easy.
Going chronologically, the first and most important step is getting in touch with a good investment platform. Perform detailed research on their background, look out for top customers and get in touch with them.
A company with a good credit history will never shy away from flaunting it, and if you don’t find property listings or success stories on their websites, it can be a huge red flag.
A good investment platform will always try to ease your burden and perform some tasks on your behalf and will always keep you updated on the progress made.
Before selecting one of the concepts, make sure you grasp the benefits and drawbacks of each. Also, to ensure a seamless experience with the property, consulting an expert is highly recommended.
The future of fractional ownership projects in the Indian real estate market will be determined by several factors, including market price recognition. For the time being, the market for such assets is restricted to the commercial sector. The concept is often used in the real estate industry but may also apply elsewhere. Assetmonk is one of India’s most rapidly developing real estate platforms, featuring real estate investment options in key cities such as Hyderabad, Chennai, and Bangalore. We provide real estate properties with investment potential that have been meticulously listed following a thorough due investigation and made affordable via fractional ownership. Visit our website to begin your investment with us!
Fractional Ownership FAQ’S
Fractional ownership as an investment has a lot to offer, you get to enjoy high liquidity and returns, asset appreciation and safer investments as they allow you to diversify your portfolio.
At the same time one of the biggest downsides of the investment is that they leave little to no room for investor’s control over the property which could be a disadvantage for some investors.
No, timeshare is similar to renting a property, whereas in fractional ownership you gain property ownership.
It can last anywhere from three months to ten years, hence fractional ownership makes both, good short and long term investment.