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      Fractional Ownership in Commercial Real Estate: Is it a Good Investment for Indian Investors?

      • 5 min read
      • Last Modified Date: April 30, 2024
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      • Are you an Indian investor interested in diversifying your portfolio and entering the lucrative world of commercial real estate?
      • Look no further than fractional ownership. With this innovative investment model, you can own a portion of a high-value commercial property and reap the benefits of regular rental income and property appreciation without the hassle of managing the property yourself. Is fractional ownership, however, a good investment for Indian investors? 
      • In this blog, we’ll look at fractional ownership in commercial real estate, weigh the risks and rewards, and help you decide if this is the right investment strategy for you.
      • So grab a seat because we’re about to take a deep dive into the fascinating world of fractional ownership real estate.

      What Is Fractional Ownership and How Does It Work?

      Multiple investors pool their resources to co-own a valuable property under the concept of fractional ownership. Instead of purchasing the entire property, each investor purchases a fraction or share of it. Typically, this type of ownership is facilitated by specialised real estate investment platforms or businesses that manage the process.

      Practical Illustration of Fractional Ownership

      Imagine there is a five-star beachfront resort with opportunities for fractional ownership. There are 20 shares in the resort, each of which is worth approximately INR 1.5 crore. Depending on their available funds, investors may buy one or more shares.

      As soon as the investors purchase their shares, the fractional ownership platform handles resort management. They take care of everything, including booking guests, managing reservations, and performing maintenance.

      Guests who book accommodations generate rental income for the resort throughout the year. Assume the resort earns INR 7.5 crore (approximately) in rental income per year. If an investor owns two shares (10% ownership), they will receive INR 75 lakhs (approximately) (10% of INR 7.5 crore) as their share of the rental income.

      Benefits of Fractional Ownership for Indian Investors

      Diversification 

      Having fractional ownership allows investors to diversify their holdings and spread their risk across several high-value properties. 

      Reduced Costs

      Fractional ownership can give access to high-value commercial properties that might have been out of reach for individual investors by pooling resources with other investors.

      Passive Income

      Even though they don’t actively manage the property, investors can still share in the rental income.

      Expert Management 

      Platforms for fractional ownership typically offer professional property management services, relieving investors of the burden of managing real estate.

      Professional Due Diligence

      The properties that fractional ownership platforms offer have undergone thorough due diligence, giving investors expert insight into the potential risks and returns of their investments.

      Flexibility

      A variety of investment options are typically available on fractional ownership platforms, allowing investors to select the properties they want to invest in and modify their investment portfolio over time.

      Seven Key Strategies for Successful Fractional Ownership Investing in Real Estate

      For investors who want to diversify their portfolios and have access to high-value commercial properties, fractional real estate ownership can be a compelling option. However, it necessitates careful thought and planning, just like any investment strategy. 

      Here are some strategies to help you invest in fractional ownership of real estate:

      1. Define Your Investment Goals

      It’s critical to establish your investment objectives before investing in real estate fractional ownership. Are you looking for long-term growth, passive income, or a combination of both? What is your threshold for risk? You can select the ideal properties and investment opportunities by providing answers to these questions. 

      1. Research the Fractional Ownership Platform

      There are many fractional ownership platforms available, each with its own investment options, fees, and policies. Do your due diligence and research the platform before investing. Look for a new-age alternative investment platform like Assetmonk with a strong track record, transparent fees, and a user-friendly interface.

      1. Choose the Right Properties

      Platforms for fractional ownership typically offer a variety of properties in various asset classes and locations. Choose properties based on your risk tolerance and investment objectives. Location, tenant mix, potential for appreciation, and past performance of the property should all be taken into account.

      1. Analyse the Financials

      Examine the property’s finances, including the rental income, maintenance costs, and potential for appreciation, before investing. Look for homes with a proven track record of successful rentals, dependable tenants, and expansion potential. Verify that the expected returns align with your investment objectives.

      1. Consider the Risks 

      Real estate fractional ownership entails risks like those associated with any other investment, such as changes in the market, vacancies, and unanticipated costs. Before you invest, make sure you are aware of the risks and have a strategy in place to mitigate them.

      1. Diversify Your Portfolio

      Consider diversifying your portfolio across various properties and asset classes to reduce risk and increase returns. This can increase your long-term stability and help spread out your risk exposure.

      1. Stay Informed

      Follow the real estate market in general as well as the performance of your investments. Stay informed about changes in interest rates, economic indicators, and market trends that could impact your investments.

      Key Takeaways

      • Fractional ownership is a new concept in real estate investment that allows multiple investors to jointly own a single high-value property.
      • In commercial real estate, where large properties necessitate hefty capital outlays and specialised management, fractional ownership is frequently employed.
      • Investors can gain from flexible fractional ownership, lower costs, passive income, diversification, expert management, and professional due diligence.
      • Establishing investment objectives, researching fractional ownership platforms, selecting the appropriate properties, analysing financial data, considering risks, diversifying portfolios, and maintaining knowledge are all strategies for successful fractional ownership investing in real estate.
      • Investors should carefully weigh the benefits and risks of fractional ownership before selecting an investment strategy that fits their objectives and risk tolerance.

      To Summarise

      For Indian investors seeking to diversify their portfolios and gain access to high-value properties, fractional ownership in commercial real estate can be a wise investment strategy. By pooling resources with other investors and leveraging the expertise of new-age alternative investments platforms like Assetmonk, investors can reduce their risk exposure, enjoy passive income, and benefit from expert property management. However, it’s crucial to exercise due diligence and pick the appropriate properties with care that matches your investment objectives and risk tolerance.

      Related Articles: Fractional Ownership Real Estate Concept Explained

      Fractional Ownership Investment – The Access Card to Institutional Grade Properties

      FAQs

      Q1.What you need to know about fractional ownership? 

      A.Fractional ownership is a way to own a portion or share of an asset, such as real estate, a private jet, or a yacht, with other investors. It enables you to benefit from ownership at a lower cost and with less responsibility, including usage, income, and appreciation. It does have restrictions, though, like requiring collaboration on expenses and sharing an asset with others.

      Q2.Is fractional ownership allowed in India? 

      A.India permits fractional ownership. Depending on the type of asset and the ownership structure, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) both recognize and regulate the concept of fractional ownership.

      Q3.How do you structure fractional ownership? 

      A.The structure of fractional ownership is determined by the type of asset and the investors’ preferences. It can be structured as a corporation, a trust, a partnership, or a cooperative, with various legal, tax, and operational arrangements. The key is to define the investors’ rights and obligations, such as usage rights, cost allocation, decision-making processes, and exit options.

      Q4.Why should I invest in fractional ownership? 

      A.There are several benefits to fractional ownership, including:

      • Access to high-value assets that would otherwise be too expensive or inconvenient to own fully
      • Add an alternative asset class to your investment portfolio to diversify it.
      • Sharing ownership risks and expenses with other investors
      • The asset has the potential for both income and capital gains.
      • The ability to change your ownership stake or exit the investment at any time.

      Q5.Can you negotiate for fractional ownership? 

      A.Yes, depending on the terms and conditions of the offering and the bargaining power of the parties involved, you can negotiate for fractional ownership. Some aspects that may be negotiated include the purchase price, usage rights, cost allocation, decision-making process, and exit options. However, the negotiation may also be influenced by the legal and regulatory framework that governs fractional ownership in a specific jurisdiction.

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