How to Get Started with Fractional Ownership in India
Fractional ownership is the hottest trend in Indian real estate. The real estate sector is becoming democratized as a result of fractional ownership. A retail investor can now invest in a former pricey but very profitable real estate. So, if you are one aspiring investor too, you are wondering where and how to start, right?
Read along to find out how you can start investing in fractional ownership real estate in India.
What is Fractional Ownership?
Fractional ownership real estate is the ownership of a part of a commercial property. Ownership gets achieved by a group of investors with pooled funds. These enormous commercial assets would not be accessible to retail investors. The fractional ownership real estate firm lets investors invest and profit from appreciation.
Let me illustrate this with an example. A group of investors is in charge of a Rs 20 crore commercial property. 10 retail investors get invited to invest a least Rs 10 lakh and get fixed returns as per their investment.
A variety of properties get advertised on an IT-enabled marketplace under fractional ownership. Following that, the least ticket size gets determined. Then, investors get invited to select portions based on their preferences and capacity.
Types of Real Estate Fractional Ownership
Although fractional ownership Real estate is a relatively new idea in India, it has already become very popular among investors looking for a more adaptable real estate investment strategy. Due to the high cost of real estate and the scarcity of financing options for small investors in India, fractional ownership is especially appealing. The most popular kinds of fractional ownership Real estate in India are as follows:
Joint Development Agreements (JDAs)
In India’s real estate market, a Joint Development Agreement (JDA) is a typical form of fractional ownership. A JDA binds the landowner and the developer to a contract for the development of the land and a division of the proceeds from the sale of the finished product. Investors can take part in a JDA by making financial contributions to the project and receiving a profit-sharing payment based on their investment.
Real Estate Investment Trusts (REITs)
In India, Real Estate Investment Trusts (REITs) are a second common type of fractional ownership. Publicly traded businesses that own and manage a portfolio of real estate assets that generate income are known as REITs. A REIT allows investors to buy shares and receive dividends based on the income produced by the properties the REIT owns.
Fractional Ownership Platforms
Platforms for fractional ownership, also referred to as platforms for real estate crowdfunding, have grown in popularity in India recently. These platforms enable investors to look through a variety of properties and make any size investment they choose. Following that, each investor owns a proportionate share of the property and receives a portion of the rental income.
Co-living and Co-working Spaces
In India, especially in major cities like Delhi and Mumbai, co-living and co-working spaces are becoming more and more common. Although a single entity typically owns and operates these spaces, investors can buy shares in the entity and receive a portion of the revenue produced by the space.
In India, fractional ownership of vacation homes like beach houses or mountain lodges is also on the rise. Investors can purchase a share of the property and use it for a specified period each year. The remaining time, the property can be rented out to generate income.
What Are the Advantages of Fractional Ownership in Real Estate for Indian Investors?
For Indian investors, fractional ownership in real estate has several advantages.
Here are a few key benefits:
One of the primary advantages of real estate fractional ownership is that it allows investors to diversify their investment portfolios. Real estate has consistently been one of the top asset classes for high net worth individuals (HNIs) in India, accounting for around 40% of their investment portfolios, according to a PwC India report. Real estate fractional ownership provides a more affordable and accessible way for investors to diversify their portfolios and reduce risk.
Real estate has historically been a high-yielding investment, and fractional ownership in real estate allows investors to earn high returns without investing a large sum of money. According to a Knight Frank India report, investors can expect rental yields of 6-8% on fractional ownership in real estate.
Real estate fractional ownership can also provide passive income. Investors can earn rental income on their property ownership stake, which can provide a consistent stream of income over time.
Access to New-Age Alternative Investment Platforms
In India, several new-age alternative investment platforms, such as Assetmonk, provide fractional ownership of real estate. These platforms facilitate real estate investment by providing a user-friendly platform, transparent pricing, and hassle-free property management.
Fractional Ownership vs. Traditional Real Estate Investment
|Parameters||Fractional Ownership||Traditional Real Estate Investment|
|Ownership Structure||Shared Ownership||Full Ownership|
|Potential for Return||High||High|
Which is Better: Fractional Ownership or Traditional Ownership?
When it comes to investing in high-value properties in India, the decision between fractional ownership and traditional real estate investment is influenced by your investment objectives, risk tolerance, and financial situation.
If you want to diversify your portfolio by investing in multiple properties without having to pay the full purchase price, fractional ownership can be a great option. It can also be an appealing option if you want to invest in high-value properties that would be out of your price range if you bought them outright. You can benefit from rental income and capital appreciation by investing in a portion of a property through fractional ownership.
Traditional real estate investment, on the other hand, may be a better fit for you if you prefer to have sole ownership and control over the property. You have complete control over the property, including rental pricing, tenant selection, and property management. You are also free to sell the property at any time.
Because it can take time to find a buyer for a property, traditional real estate investment typically has lower liquidity than fractional ownership. You can sell your share of the property more easily with fractional ownership, but you must find a buyer willing to purchase your share.
Finally, the choice between fractional ownership and traditional real estate investment is determined by your personal goals and circumstances.
- Real estate fractional ownership is a unique investment strategy that allows investors to purchase a portion of a property rather than the entire property.
- Diversification, high returns, passive income, and access to new-age alternative investment platforms are all advantages of fractional ownership for Indian investors.
- Real estate fractional ownership is particularly appealing to Indian investors because it allows them to invest in high-value properties that would otherwise be out of their price range.
- The decision between fractional ownership and traditional real estate investment is influenced by your investment objectives, risk tolerance, and financial situation.
- If you want to diversify your portfolio by investing in multiple properties without having to bear the full cost of purchasing them, fractional ownership may be a better fit for you, whereas traditional real estate investment may be a better fit for you if you prefer sole ownership and control over the property.
Step-by-Step Guide to Investing in Fractional Ownership Real Estate
Diversifying your financial portfolio and investing in fractional ownership can enhance it. Real estate may provide you with access to the housing market. Follow these basic steps to invest in real estate fractional ownership:
Step 1: Select a Platform for Fractional Ownership
The first step is to choose a reliable fractional ownership platform to invest with. Choose investing platforms that have a proven track record of performance. They should be transparent and honest about their costs and investment prospects. They should also offer a diverse range of investment options. There are many professional real estate investment platforms like Assetmonk. It is a good option since they offer a user friendly interface and a wide range of investment choices.
Step 2: Look into Investment Opportunities
The next step is to investigate the available investment opportunities. Seek assets that match your investing goals, risk tolerance, and time horizon. Platforms give detailed information about each investment opportunity including financial predictions. You will also know property specifications, and expected returns.
Step 3: Examine Your Investment
Ahead of making an investment, it is critical to research the investment. Examine the platform’s property data, financial estimates, and any other pertinent information. Look for possible hazards and weigh them against the potential rewards. If you have any queries or problems, contact the platform’s customer service staff.
Step 4: Make a financial investment
It’s time to make your investment. But, only after you’ve located an investment opportunity that satisfies your criteria. These platforms enable you to invest online, making the transaction quick and easy. You can invest with INR 25 lakhs in premium properties. So, fractional ownership is a viable investment option for an array of investors.
Step 4: Keep an Eye on Your Investment
It is critical to check your investment once you have made it. Keep an eye out for any property-related developments or news. Also, you must examine your returns on a regular basis. Fractional ownership platforms provide regular updates and extensive data. These will keep you informed about the success of your investment.
Considerations Before Making a Fractional Ownership Real Estate Investment
Fractional ownership is a new investment instrument. So, investors should consider a few key points before investing.
- Detailed research plus background checks: Investors must conduct extensive research on the firm. Investors must investigate major investors’ backgrounds and financial standing. A stable team must support the facilitator.
- Legality: Investors should confirm the facilitator can serve as a fractional investment facilitator. Because this investment is so large, the likelihood of fraud increases.
Also read Curious About Fractional Property Ownership? Here Are The Essential Legal Facts.
- Tech environment: Investors should opt for a tech-enabled fractional investment firm. If so, your investments can get tracked online. Investors are more likely to proceed if they have easy exit alternatives and no hidden terms.
- Seek the Best Deal: Experienced investors get skilled at negotiating. It is a ‘great to have’ ability. Try to get the biggest discounts possible, as huge projects have a lot of price flexibility.
Fractional ownership of real estate is a new idea in the Indian real estate industry. But, it has created a novel potential for individual investors. Those high-ticket commercial real estate holdings have become more accessible to investors. They can profit from investing in properties with high return potential. Investors must conduct a detailed investigation of the facilitator.
Assetmonk is one of the most innovative alternative investment platforms. You may invest in alternative investment options such as real estate on a budget. We make alternative assets, such as real estate, more accessible. Reach out to us right away!
- Fractional Ownership of Property Vs REITs.
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Q1. Is fractional ownership legal in India?
A. It is, indeed, legal. However, there is currently no specific legal structure in India that governs commercial real estate fractional ownership.
Q2. Can you sell fractional ownership?
A. One significant advantage of fractional ownership is the ability to resell. If the price or value of your fractional property rises throughout your ownership tenure, you can sell your fractional portion for a profit.
Q3. What is the difference between REITs and fractional ownership?
A. Because fractional ownership allows for liquidity, you can sell your share any time you want. REITs cannot be transferred or sold at the discretion of the investor.
Q4. Why invest in fractional ownership?
A. You should invest in fractional ownership because you can invest in Grade-A commercial properties with just Rs. 25 lacs.
Q5. Do you make money with fractional ownership?
A. If the ownership agreement allows it, a fractionally owned property can be rented out as a short-term or long-term rental. Depending on the terms of the agreement, all owners may be entitled to a portion of the rental income.
Latest News About Fractional Ownership
Empowering Investors: SEBI To Regularize Fractional Ownership Platforms for Investor Protection
Discover how the regulation of fractional ownership platforms is empowering investors in the real estate market.
15 May 2023