The Impact Of Fractional Ownership On The Housing Market In India

Fractional Ownership On The Housing Market

It’s no secret that the housing market in India has quickly developed into a lucrative destination for both strategic and foreign investments. While the global housing market has been steadily recovering from its pandemic hangover, India’s real estate industry has been quietly thriving under the radar. 

The country’s housing market, earlier valued at $200 billion in 2021, is expected to reach impressive heights of $1 trillion by 2030. A major chunk of this has been through alternative investment in real estate. A large number of experienced investors in the industry are opting for alternative investment models, which are getting more and more popular, due to a number of reasons: 

These models, such as fractional ownership of commercial real estate, offer an ease of investment not usually seen with traditional purchase of property in the real estate sector. Increased flexibility, low entry barrier as compared to full ownership of property, and reduced risks due to joint ownership where costs and profits are shared among investors, are some of the key factors contributing to the success of fractional ownership in India. 

Fractional Ownership: Revolutionising The Housing Market In India

Based on a recent report by TruBoard partners, the fractional ownership market in India jumped from Rs 1500 crore in 2019 to about Rs 4000 crore in 2023. Now that I have your attention, let’s delve into what fractional ownership actually is and how it has affected the Indian housing market: 

Understanding Fractional Ownership

The fractional ownership model refers to small, shared investment holdings of real estate assets. In passing terms, a number of investors pool together their money to buy a property, which is being offered by a number of fractional ownership platforms (FOPs) on the real estate market. Let’s say you and 5 other investors pool in 50 lakhs each to purchase a 2.5 crore property. Now you and the other investors have fractional, or co-ownership in that property. 

These FOPs then manage the property on behalf of all the investors. Then the rental returns from the property are shared by the investors, after the FOP takes a small share for its management services, of course.

Fractional Ownership Platforms: Are They Regulated?

Present day real estate trends have seen the emergence of a number of Fractional Ownership Platforms, very much like Assetmonk, offering secured opportunities for investors in real estate, with reduced risk and a relatively lower cost of investment. 

The Securities and Exchange Board of India (SEBI), has recently approved amendments to the SEBI (Real Estate Investments Trust) Regulations 2014 to create a new regulatory framework for small and medium Real Estate Investment Trusts (REITs), which will hold real assets under the fractional ownership model.

Impact of New Regulation: Creating Waves 

Currently, most Fractional Ownership platforms are mostly web based and pool funds from investors to buy stakes in high value commercial real estate that are up for lease. Most of these properties are commercial properties but there are instances of residential complexes and luxury holiday homes coming under the co-ownership model, which could be a worthwhile space to explore in the coming years. 

With SEBI’s new amendment, there are questions as to how many FOPs will qualify for aggregating funds under the new criteria, and what the position of existing investors in these properties would be. 

Well, good news is on the horizon. Data indicates that fractional and co-ownership models are here to stay, with the new SEBI regulations expected to boost investor participation and protect the interests of both the investors as well as existing fractional ownership platforms. 

Impact On The Housing Market: Creation Of A New Asset Class

As per a recent Knight Frank report, in 2020, the market for fractional ownership in India was worth USD 5.4 billion, and it is expected to increase to USD 8.9 billion by 2025, at a Compound Annual Growth Rate of 10.5%.

Most housing market estimates gauge that existing FOPs have raised around Rs 3500 crore from investors in this space in the last 2-3 years.

Let’s take a closer look at the new proposed SEBI norms: As per the proposed regulations, investments under the fractional ownership model can have a minimum asset value of at least Rs 50 crore, as compared to the current minimum asset value of Rs 500 crore which has been set for the existing REITS. Such fractional ownership assets are proposed to be brought in the Micro, Small, and Medium REITS under SEBI’s REITS rules. 

Therefore, the new SEBI proposed framework has actually expanded the SEBI (REIT) Regulations to bring FOPs under its regulatory eye: This will not only develop the market for joint ownership but also protect new and existing investors. 

SEBI’s acknowledgement of alternative investment in the form of fractional ownership is a stamp of approval by the regulatory authority on this growing industry; the move will reassure investors and provide more confidence, and also aid existing web based fractional ownership platforms in their development.

Dual Positive Impact: Balancing Risk And Reward 

All signs indicate that fractional ownership and FOPs are set to be formalised as an investment class in the very near future. This will lead to the creation of a larger market, attract new investors, and also lead to new demand in the travel and hospitality sectors. 

While it is indeed a growing market, investment rates are high, as well as the Internal Rate of Return promised on these investments; and fractional ownership is only going to develop a new asset class as well as new type of investor in the current housing market, one that values flexibility and ease of investment. 

Assetmonk: A Pioneer In Alternative Real Estate Investment

Assetmonk has been leading the line in the emerging alternative real estate investment space, and seeks to provide investors with unique opportunities for fractional ownership of prime commercial properties with a high Internal Rate of Return (IRR) and flexible liquidity options. 

In the midst of this real estate revolution, fractional ownership is all poised to play a huge role. And we remain dedicated in our passion to guiding investors through this transformative journey, and helping new and veteran investors realise the full potential of alternative investment in commercial real estate. 

READ MORE 

Investing in Commercial Real Estate

Fractional Ownership Real Estate India

FAQs

What is fractional ownership? 

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.

What are the risks involved?

The property owner has to bear the loss when it comes to full ownership. And as the name suggests, when it comes to shared or co-ownership through FOP’s, the group of investors share the risk as per their contribution to the purchase of the property. 

What are some of the reasons behind the popularity of alternative real estate investing models?

Models such as fractional ownership appeal to investors because they provide additional flexibility, a lower entrance barrier, and decreased risks through shared ownership.

Are Fractional Ownership Platforms (FOPs) regulated in India?

Not yet, but the Securities and Exchange Board of India (SEBI) has approved a proposed amendment to create a regulatory framework for small and medium Real Estate Investment Trusts (REITs) under the fractional ownership model.

How Is Fractional Ownership Different from Traditional Ownership Of Property? 

In contrast to traditional models in which one person owns the entire property, fractional ownership allows numerous people to share ownership. This increases the accessibility and affordability of real estate investment for a broader variety of investors.