These are the numerous investment opportunities available to NRIs in India. This article helps the NRIs to understand the different methods where they can be able to create tax-smart portfolio with their investments.
Fractional Property Ownership in India – A Guide to its Rules and Regulations
Fractional property ownership, being a relatively newer topic in India, has been through a lot of speculations and questions based on the norms and regulations surrounding it.
Somewhat similar to stocks and mutual funds, fractional ownership is a rapidly growing market in India. These fractional ownership deals are supported by private real estate or fractional ownership platforms. A fractional ownership platform is basically a company that identifies high-value real estate properties and invites investors to purchase shares or fractions of that property to generate a passive income.
The next step usually involves investors forming a Special Purpose Vehicle (SPV) to purchase their property or contacting a property management company.
Special Purpose Vehicle
A special purpose vehicle is a subsidiary company that undertakes specific business activities. In financial applications, an SPV is responsible for asset securities (as in the case of fractional ownership), joint ventures, and property deals and isolating company assets.
When dealing with fractional ownership, an SVP can be really helpful, but some tech companies also use blockchain technologies to store and update customer information securely.
While buying a property via fractional ownership model, the company you invest through becomes your property manager. As the company has professionals taking care of your investments, you can sit back, relax, and get regular returns straight to your bank accounts.
Rules and Regulations
As Fractional ownership companies act both, as real estate investment agents and investment managers, ideally, they must register themselves as ‘real estate agents’ as per the RERA Real Estate ( Regulations and development) 2016.
And they can be expected to follow the rules and regulations laid down for real estate agents, like:
- Maintaining books of accounts.
- Not getting involved in unfair trade practices.
- Maintaining transparency and facilitating all related information to the investor at the time of booking (investment).
Although all these rules can be applied to an FOP, since fractional ownership is a relatively new idea, the Securities and Exchange Board of India is yet to come up with strict guidelines for the investment option.
What Could The Laws Look Like In The Future?
To better understand what these regulations could look like in the future, we need to find similar systems that SEBI has passed regulations on. One of these is the Collective Investment Scheme. According to the CIS Regulations set up by SEBI, any investment qualifies as a collective investment if it has the following qualities
- The contributions made by investors must be pooled to be used collectively as a consolidated asset.
- The investors must only invest with the intention to earn profit.
- The property (invested in) must be managed on behalf of all investors by a second party.
- Investors must not have direct day-to-day control over the property.
Based on what we have shared so far, you must have seen the similarities between fractional ownership and CIS. If these are considered similar by SEBI as well, we might see some tweaks in the existing rules for CIS and it being implemented on FOPs as well.
These are the points that we hope are emphasized:
- Compulsory Due-diligence
FOPs might have to compulsorily perform a company’s due diligence of the company and follow a full disclosure policy in any case. As investors are not managing their assets directly, these steps will be beneficial in earning their trust.
- Accredited Investors
As SEBI has been trying to introduce accredited investors to the landscape for a very long time, they could use this opportunity to do so. FOPs might only be allowed to invite accredited investors to enjoy certain regulatory relaxations.
Since fractional ownerships are managed and controlled by companies, go for a reliable investment platform that has a history of delivering what they promise. Assetmonk is a highly transparent system where investors always come first. As we perform the company’s due diligence on our own, you don’t have to worry about the hassles as well. Not just that, the team of highly skilled investment managers at Assetmonk also makes sure that the company, as well as your assets, are always in profit.
Regulations on FOPs have become very important, especially when fractional ownership is gaining popularity. These regulations are not just important to protect investors from fraudulent elements in the system, but they will also bring investors’ confidence in the functioning, and for Fractional Ownership to be used as the asset it is.
Fractional Property Ownership in India – Rules and Regulations FAQ'S
Fractional ownership in real estate is a structure where multiple investors pool their assets to purchase a high-end property.
Here all investors become owners of the property depending on the fraction they invest.
Fractional ownership in CRE is a more affordable and hassle-free form of commercial real estate investment.
Here an investor enjoys all perks of owning a property such as high returns, asset appreciation, high liquidity of assets, and also they don’t have to worry about the maintenance and management of their property.
Purchasing, managing, ownership, or renting of property to generate an income is called property investing.