Fractional Ownership: A Game-Changer in the Indian Real Estate Market

Did you know that the Indian real estate market is among the strongest in the world, growing at an astonishing rate of 11 percent CAGR? Not only that, the industry currently contributes 10 percent of the GDP and is projected to contribute USD 1 trillion to the Indian economy by 2030. That’s why it should come as little surprise to our readers that real estate has had a long and well-established tradition as one of the most lucrative investment assets in India.

In fact, homeownership has long been associated with emotional satiety and respect in the country. In recent years, however, the industry has evolved, with increasing interest being witnessed in investing in higher-ticket properties. While earlier, investing in such high-value real estate assets was viewed as the purview of the elite or big corporations, the industry today has evolved.

With the introduction of policy frameworks like the Real Estate Regulatory Authority (RERA), investing in the industry has never been more transparent and hassle-free. However, in recent years, another investment tool has been gaining popularity in the real estate world in India. While earlier people were hesitant to invest in sizable real estate due to the high cost of entry, risk of ownership, and associated responsibilities, fractional ownership has completely shifted the real estate paradigm in India.

Before we delve into the intricacies of what the introduction of fractional ownership has done to Indian real estate, let us first understand what it actually entails.

To put it simply, fractional ownership is essentially the cost of ownership of a high-priced asset that is split via shares, where each person owns a percent of the asset and the associated risks and responsibilities. When it comes to real estate, it simply means that multiple investors jointly own portions of a high-value property, which they are entitled to a proportional stake in.

This enables the investors to mitigate the risk of owning and the responsibility of managing the entire property while enjoying the investment’s benefits. While the concept was already popular globally, it is only recently that it has been introduced in the Indian market by a few startups. However, given the positive public sentiment, industry experts opine it would not be long before the real estate tycoons join the wave.

An investment management consultancy in a recent study emphasised the role technology-enabled platforms will play in spearheading the ascendancy of fractional ownership. The study also highlighted the growth of fractional ownership in India, from Rs 1,500 crore in 2019 to Rs 4000 crore in 2023. To better understand the reason behind this fantastic growth momentum, let us study some of its advantages:

While earlier real estate assets, particularly luxury residences and commercial properties, were viewed as difficult investments for those with a limited budget, fractional ownership has completely changed the game. Today, investors even with a small budget can easily access these properties by sharing the costs with other investors. This allows investors to enjoy all the benefits and amenities of these spaces while minimising costs and risks.

Since the entry cost of fractional ownership is relatively lower than that of full ownership, it allows investors to curate a more diversified portfolio, thereby minimising the risk associated with owning a single property.

Another advantage of fractional ownership is that while the entry price is limited, as the investors own shares in the property, when the property’s value appreciates, so does the value of their share, which leads to an increase in equity ownership.

One of the biggest hindrances for new investors when foraying into the world of real estate is the maintenance costs, upkeep, and management of the property. In fractional ownership, these responsibilities are shared by the co-owners, therefore reducing the financial burden on everyone involved.

In addition to the appreciation potential of these real estate assets, these assets can also provide a steady stream of rental income, providing financial security to investors.

As opposed to full ownership of real estate assets, which are not easily liquidated, fractional ownership allows investors to sell their shares to other investors or management companies, offering an easy exit strategy.

Fractional ownership is gaining ground in India, providing a fresh approach to property investment. As the market matures and regulations evolve, it’s poised to transform the real estate landscape, making investment more accessible. However, potential investors must do their due diligence and understand the terms of each opportunity for informed decision-making.