Did you know that experts predict that Fractional Ownership in India will reach $5 Billion in a few years? We have placed a lot of trust and loyalty in real estate investments as a society. Land ownership is regarded as one of the most important class symbols, ensuring your place in the uppermost strata of the community.
The high cost of commercial real estate has historically made it difficult for individual investors to invest in the market. Fractional ownership, on the other hand, is changing the game. This blog explores the benefits of fractional ownership, which enables investors to participate in commercial real estate without having to make sizable financial commitments. Learn about the mechanics, benefits, and platforms for commercial real estate fractional ownership.
- What is Fractional Ownership?
- Who can invest in CRE through Fractional Ownership?
- Return on Investment (ROI) from Commercial Real Estate
- Why is Fractional Property Ownership Gaining Traction in India?
- Types of Fractional Ownership Real Estate
- Advantages of Fractional Ownership: Benefits for Commercial Real Estate Investors
- Which is Better: Fractional Ownership or Traditional Ownership?
- Important Points about Fractional Ownership
What is Fractional Ownership?
As the name implies, fractional ownership refers to owning only a portion of a property rather than being the sole owner. It refers to a situation in which several investors pool their funds to purchase a property. They jointly own a valuable asset in a passive position.
A single investor can own a property with less financial stress and realize returns on their investment through this strategy. In this case, the asset could be anything, such as residential or commercial real estate, a warehouse, a jet, or a boat. Each investor will receive a fair share of the profits and costs associated with these assets based on their investments.
Commercial real estate (CRE) is currently a profitable investment in India. The minimum investment for obtaining a fractional ownership in a commercial property is Rs. 25 lakh.
Estimates suggest that the fractional ownership market in India jumped from Rs 1,500 crore in 2019 to Rs 4,000 crore in 2023.
Source: TruBoard Partners
Impact of SEBI’s Standardisation on Fractional ownership in India
As co-ownership of real estate has started gaining traction, the market regulator — Securities and Exchange Board of India (SEBI) — is considering a regulatory framework for fractional ownership.
The SEBI proposal involves regulating fractional ownership platforms (FOPs) by adding a new chapter to the REIT regulations and designating them as MSM (micro, small, medium) REITs. MSM REITs must have separate and distinct entities for trustees, sponsors, and investment managers, with a minimum net worth of Rs 20 crore and Rs 10 crore, respectively, under current regulations. By providing necessary regulations, It would institutionalize the segment, increase liquidity, lead to better price discovery, and attract a larger quantum of capital in the real estate sector through retail investors
According to a report by Knight Frank, the market size of fractional ownership in India was USD 5.4 billion in 2020 and is projected to reach USD 8.9 billion by 2025, growing at a CAGR of 10.5%.
Who can invest in CRE through Fractional Ownership?
Any Indian citizen, including NRIs can invest in CRE properties in India, provided they submit valid KYC documents. NRIs can invest through their NRO accounts.
Return on Investment (ROI) from Commercial Real Estate
Commercial real estate yields higher returns than most other stable investment options. Commercial property rental yields range from 8% to 10%, or Rs. 2 lakh to Rs. 2.5 lakh per year for a Rs. 25 lakh investment, with an IRR (internal rate of return) of 16 to 20% over five years.
The CRE market is not a place to make quick money. Investors should commit funds with a long-term view of at least 3-5 years in mind.
Another trending Investment option is commercial real estate structured debt which presents a lucrative option for individuals seeking to expand their real estate holdings beyond the realm of fractional ownership. This route is quite appealing, and it has earned a place among India’s top investment opportunities. This investment channel offers an impressive internal rate of return (IRR) of 17% with a low entry threshold of just Rs. 10 lakhs.
This asset class is not subject to any specific regulations. The rent received from the CRE property is taxed as income from other sources under the current income tax system.
A home loan used to purchase a house qualifies for exemptions from taxes under Sections 24 and 80C of the Income Tax Act. NRI investors can benefit from the Double Taxation Avoidance Agreement (DTAA) signed with their current residence country.
Assetmonk’s latest safe investments in real estate structured debt with high returns in India offering minimal investment of just 10 Lakhs and a silver lining comes in the form of potential tax benefits where investors can claim tax benefits of up to Rs 50,000.
Why is Fractional Property Ownership Gaining Traction in India?
India’s fractional ownership of real estate is gradually gaining acceptance among investors as assets under management have touched Rs 4,000 crore, according to a report by TruBoard Partners.
By democratizing investment opportunities and providing retail investors with access to high-value commercial properties, fractional ownership is revolutionizing the Indian real estate sector. This investment model is rapidly gaining popularity due to its potential for high returns, ease of tracking, and diversification benefits. This innovative approach allows multiple co-owners to collectively invest in and enjoy the benefits of owning high-end properties, offering a slice of opulence previously accessible only to the elite.
Real estate continues to remain a lucrative investment option with 61 per cent of HNIs and UHNIs looking to buy real estate in 2023-24. In comparison to traditional options like stocks and mutual funds, Fractional ownership offers stability and lower volatility.
Types of Fractional Ownership Real Estate
Even though fractional property investment is a relatively new bulging concept in India, it has gained significant popularity among investors seeking a flexible real estate investment approach. Given the nature of real estate and limited financing opportunities for small scale investors in India, fractional ownership is especially appealing. The most popular kinds of fractional real estate investing in India are as follows:
Joint Development Agreements (JDAs)
In the real estate industry in India, it is quite common to come across situations where fractional ownership occurs through what’s known as a Joint Development Agreement (JDA). JDA establishes a contract between the landowner and developer, specifying their joint efforts toward land development and the subsequent division of the proceeds from the sale of the finished product. Investors can take a part in a JDA through financial contributions to the project and thereby entitling them to a profit-sharing payment based upon their investment.
Real Estate Investment Trusts (REITs)
Within India, Real Estate Investment Trusts (REITs) represent another prevalent type of fractional property investment. REITs are publicly traded companies that hold and manage a variety of income-producing real estate assets. REIT is a lot like mutual funds.
Investors who purchase shares in a REIT are able to receive dividends that are equal to the profits made by the real estate assets held by the REIT organisation.
Fractional Ownership Platforms:
Lately, Platforms for investing in fractional properties, also known as real estate crowdfunding platforms, have gained popularity in India. These platforms give investors the chance to look at a wide range of properties and make investments of the size that they find most appealing. Following that,Each investor has a proportionate stake in the property, entitling them for a share of the rental income.
Fractional ownership has drawn a lot of attention in India’s Top-tier cities like Delhi, Mumbai and Bangalore in co-working spaces.
Even though a single entity often own and operates these spaces, investors can buy shares in the entity and receive a portion of the revenue produced by the space.
Fractional ownership of vacation homes like beach houses or mountain lodges is also becoming more popular in India. Shares of the property are available for purchase, and investors can utilize them for a set time each year. In the remaining time, the property can be rented out to generate income.
Advantages of Fractional Ownership: Benefits for Commercial Real Estate Investors
Investors can diversify their portfolios by investing in multiple properties through fractional ownership. This can help to reduce risk while increasing returns. An investor, for example, might buy a fractional ownership interest in a hotel in one city and a fractional ownership interest in an office building in another. If one of the properties experiences a downturn, the investor’s risk would be reduced.
Fractional property investment provides a more affordable and accessible way for investors to diversify their portfolios and reduce risk.
Real estate has traditionally been a high-yielding investment, and fractional ownership 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 real estate fractional ownership.
Fractional ownership can be a more liquid investment than traditional commercial real estate investments. This means that investors can easily sell their fractional ownership interest rather than an entire property. This can be useful for investors who require quick access to cash.
Real estate fractional ownership or fractional real estate 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.
Which is Better: Fractional Ownership or Traditional Ownership?
Your investment goals, risk tolerance, and financial status all play a crucial role in the choice between fractional real estate investment and traditional real estate investment when it comes to investing in high-value properties in India.
The fractional investment ownership system has given investors a new set of opportunities, according to a report by JLL.
Now, you can dream of owning a piece of a large commercial property and earning with rising potential.
|Traditional Real Estate Investment
|An emerging trend whereby investors invest and own fractions of high-end real estate property.
|The traditional method of investing in real estate whereby the property is bought as a whole.
|Potential for Return
How to Exit
The policy on lock-in and exit varies by investment portal. Some portals have a six-month lock-in period, while others do not have any such restrictions. In general, there are three exit options: resale through the investor dashboard, private sale (where investors can sell their fractional ownership to anyone on their own subject to KYC and other regulatory guidelines), and complete asset sale (when the entire property is sold).
Important Points about Fractional Ownership
While investing in CRE is an attractive proposition, it requires good know-how of the product and its market. When making a CRE investment, keep the following points in mind.
- In-depth Market Research:
Property fractional ownership is a new concept in India, with only a few companies offering opportunities for individuals to invest in CRE through fractional ownership. As an investor, you must conduct your research to find out the best company with capable leaders.
- Always Look for the best Deal:
You should look for a property that provides the highest return on minimum investment. An experienced CRE investment firm like Assetmonk can assist you in securing a deal in which you do not have to pay more than market value for a property.
- Find Easy-to-Invest-and-Exit Solutions:
Find a prop-tech company that offers simple investment and exit options while ensuring maximum long-term returns with a high yield.
Commercial real estate is an appealing investment option because it provides a consistent source of income that is unaffected by other market factors and provides comparatively higher returns than other stable investment options.
The phrase “the rich get richer and the poor get poorer” is probably familiar to you. This statement could be applied to investment opportunities in our country, where enticing options such as Commercial Real Estate (CRE) are only available to High Net Worth Individuals (HNIs). The CRE industry, however, has become more accessible to the general public with the introduction of fractional ownership.
The Indian real estate market has enormous potential for fractional ownership. The concept is expected to become more mainstream as it gains more recognition and regulatory clarity. Investors will be able to diversify their real estate portfolios, gain access to high-value properties, and take advantage of professional management services.
As a distinguished player in India’s alternative investment platforms landscape, Assetmonk emerges uniquely, combining the strength of fractional ownership with the cutting-edge idea of structured debts to offer investors a smooth and satisfying investment experience. With a minimum investment threshold of just 10 lakhs and an assured IRR of 17 percent, Assetmonk provides exclusive and tailored investment options to its valued clients. Reach out to us right away!