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- The Indian real estate sector is one of the biggest, and the fastest growing alternative investment sectors in India.
- And in this growing investment space, two increasingly popular avenues are: peer to peer (P2P) real estate lending, and fractional ownership. Now, we’ve covered fractional ownership of real estate in extensive detail on our platform.
- Today, we’ll see how the fractional ownership market compares to the peer to peer (P2P) real estate lending market, and which one can be the better alternative investment for you.
What is Peer to Peer Real Estate Lending?
- Peer to Peer Real Estate lending, or P2P real estate lending, in simple terms, is a way for people to borrow and lend money for real estate, directly, and without using a bank.
- P2P real estate lending is done through online investing platforms.
- These platforms check if the borrower has good creditworthiness, or a good credit rating, and then connects them with potential lenders.
Is Peer to Peer Real Estate Lending Better than Banks?
- The reason why this kind of P2P real estate lending works as compared to more traditional options such as home loans, or banks, is because it is beneficial for both the lenders and the borrowers.
- For the borrowers, they get a bunch of different interest options and rates, and can choose the best one for them. And this kind of investment is good for lenders because they can make more money on their investments.
- Most (the best) peer to peer real estate lending platforms are regulated by the reserve bank of India to make sure that they’re safe and fair for everyone involved.
Features of Peer to Peer Real Estate Lending in India
- RBI has established guidelines to regulate P2P lending platforms, aiming to ensure stability and safeguard the interests of investors and borrowers.
- Guidelines encompass exposure limits, KYC (Know Your Customer) and credit assessment requirements, and the mandatory use of escrow accounts for secure transfers and prevention of mismanagement.
- The Indian P2P lending market is poised for significant growth in the foreseeable future.
- Growth drivers include factors such as enhanced financial inclusion, advancements in technology, a supportive regulatory environment, and the attractiveness of diversified investment avenues.
- Challenges persist, including regulatory uncertainties, management of credit risks and defaults, intense competition within the market, and concerns regarding cybersecurity and data privacy.
India’s peer to peer lending market was valued at $US 9.60 billion in 2023, and is expected to grow with a compound annual growth rate (CAGR) of 21.66% through 2029, as per markets&data. It’s expected to cross $10.5 billion by 2026.
Understanding Fractional Ownership
- Fractional ownership allows multiple investors to come together & collectively own shares of high value real estate assets. These could be Grade A commercial properties, resorts, luxury homes, and so on.
- Fractional ownership platforms like Assetmonk provide investment opportunities to investors, by pooling their funds and using them to acquire and manage high end commercial properties.
- In exchange, the investors receive a share of ownership based on their investment amount, as well as returns in the form of rental income and property value appreciation.
- Fractional ownership allows investors to own premium assets without much hassle, while also bringing other investors on board in a way that evenly distributes risks and profits.
How Big is the Fractional Ownership Market in India?
- The Indian fractional ownership market is around $500 million right now. And based on a recent analysis by JLL, it is expected grow by 10 times and to even exceed $5 billion of Assets Under Management (AUM) by 2030.
- This is in wake of fractional ownership of real estate being formally regulated by the Securities & Exchange Board of India (SEBI). The regulatory authority has now formally added fractional ownership to its ambit by notifying Small & Medium REITs.
- Under the SEBI (REIT) (Amendment) Regulations 2024, fractional ownership platforms can start collecting funds for properties with a minimum property value of Rs 50 crore, and minimum funds of Rs 10 lakh per investor, which was earlier at 25 lakhs INR.
Peer to Peer Real Estate Lending vs Fractional Ownership of Real Estate
| Aspect | Peer-to-Peer Real Estate Lending | Fractional Ownership of Real Estate |
|---|---|---|
| Ownership Structure | Lenders provide loans to borrowers | Multiple investors collectively own a share of property |
| Investment Type | Debt investment | Equity investment |
| Income Generation | Interest payments from borrowers | Rental income and potential property appreciation |
| Control Over Investments | Limited control over property management decisions | Limited control over property management decisions |
| Risk Exposure | Risk of borrower default | Market and property-specific risks |
| Liquidity | Typically illiquid | Can be illiquid, depending on the platform or structure |
| Investment Horizon | Short to medium term | Long-term commitment |
| Diversification | Limited to loan portfolio diversity | Opportunity for property and asset class diversification |
| Regulatory Oversight | Subject to regulatory guidelines, such as those set by the Reserve Bank of India (RBI) | Subject to regulatory oversight, including securities regulations and real estate laws |
| Potential Returns | Generally fixed returns based on interest rates | Combination of rental income and potential property appreciation |
| Minimum Investment | Varies depending on platform and project | Rs 10 lakh based on the new SEBI guidelines for SM REITs |
| Expected Internal Rate of Return | Typically lower, ranging from 6% to 10% | Can vary widely, with potential for 15-18% returns based on property performance and market conditions |
Invest with Assetmonk
Fractional ownership has changed how the world looks at real estate investments. It is a paradigm shift, providing ease of access and potential for global growth through technological advancements. It’s a cornerstone of the modern diversified investment portfolio.
As the real estate sector in India grows, platforms that prioritise transparency, due diligence, and an overall good experience for investors will come to the front. At Assetmonk, we’ve embraced our role in shaping the future of fractional ownership in commercial real estate in India.
Fractional ownership of commercial real estate is all set to become a mainstream investment avenue. Investors who embrace this model stand to benefit from a more flexible and rewarding real estate investment experience in the years to come.
Assetmonk is an alternative investment platform that facilitates access to these opportunities. We also contribute to the evolution of the real estate sector, and are ready to guide investors in their fractional ownership journey.
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