Santhosh Kumar, Group Vice Chairman
Let me start by asking you a question, “There is an interesting property worth Rs. 20 crore….would you like to buy?”
In all probability, your answer would be NO WAY! Now, what if I say – “Would you like to buy 1% of that real estate property for just Rs 20 lakhs?” I guess you may want to consider this option…right?
Welcome to the world of Fractional Ownership!
Joint accounts, joint ventures, joint assets, joint owners….we have heard this a lot, both at work and at home. This is an old trend that we have seen between family members or friends where you jointly buy a certain asset and the cost of the asset is divided between individual stakeholders, which means you own a part or as the name suggests a fraction of the asset. That’s what we call fractional ownership.
Is that possible?
We have seen a group jointly buying a private jet or a yacht, or even a vacation home but does this really work? It surely does. You know why? Because it’s not heavy on the pocket for one person, while the benefits and usage rights of the asset are equally divided.
Is it different from timeshare ownership?
Yes it is. In fractional ownership, you, as an investor, own a portion of the title rather than units of time. In fractional ownership, if the asset increases in value, the value of shares in the investment does as well. This is basically a collaborative effort to own any kind of asset along with known people.
It is here to stay!
The fractional investment model is rapidly gaining popularity and democratising investment opportunities because of its potential for high returns, ease of tracking and diversification benefits, It has become one of the most favoured options as it is aspirational. It creates your path to access high-valued assets/properties and get greater benefits, while it opens up investment opportunities for a wider range of individuals.
There are several private firms that have established fractional ownership platforms that empower investors to possess a portion of real estate assets. As per a recent report by TruBoard Partners, a tech-enabled real asset management company, the collective asset value in India’s fractional ownership market, encompassing all these platforms, surged from Rs 1,500 crore in 2019 to Rs 4,000 crore in 2023.
How does it work?
Let’s elaborate on the first question I asked you. The property is worth 20 crore and you have only 20 lakhs to invest, which makes you 1% owner. Similarly, there are others who may be interested too. To facilitate this investment, there are Fractional Ownership Platforms (FOPs)/Websites, I mentioned above that help you research, and manage documentation, legalities and much more. There are less hassles in fractional ownership because even if you decide that you do not wish to continue with this property, you don’t have to sell the entire property but only your share to another buyer which is easier.
Now the obvious question – Is it safe to invest?
Yes, it is. There are different online platforms, which are RERA registered that allow individuals to invest ₹20 to ₹25 lakhs and above in a property.
To safeguard the investors’ interest, these platforms appoint a trustee company that provides custodian, escrow and trusteeship services. The money collected from the investors goes into an escrow account and from there, it is sent to the seller of the property. At no point does the funds come to us the platform that ensures that the investor’s money is secured.
What are its advantages?
First and foremost, it gives you access to a property, which you otherwise would have never considered.
Secondly, it spreads out maintenance responsibilities across all owners.
Thirdly, it has a high appreciation potential and is valid for any asset or property be it residential, or commercial or even retail. When you are not using the property, you can even consider renting.
With growing digitization, it has also become convenient to track these investments through different platforms.
It helps with greater diversification of the investment portfolio, so risks are lower, leading to a more balanced and resilient investment strategy.
Beware of the cons too
This can be done only through specialized fractional ownership mortgages. Maintenance costs could be significantly high. Differences and disagreements with the co-owners.
Fractional ownership remains an attractive investment option for retail investors seeking exposure to India’s real estate market. It is important to carefully weigh the benefits and considerations, to make informed decisions, and leverage the potential of fractional ownership, and diversify your portfolios with access to high-value properties.
With the market growing and financing options expanding, fractional ownership is set to thrive in India, offering a viable avenue for individuals to participate in the lucrative real estate market.