Fractional real estate investing, or Fractional ownership, is the new Buzzword in the Indian real estate market, democratizing the way real estate investment is perceived in India. In the post-coronavirus world, investors remain on the lookout for different avenues of investment. Apart from the traditional instruments like Gold, Fixed Deposits and government bonds, real estate remains a consistent favorite. Having proven to be a successful investment model in India, people are always looking out for real estate assets, especially commercial assets owing to better cash flows. However, unlike previous generations who were able to invest considerable savings in Gold and Land, today’s urbanites have been limited to investing in residential apartments or small plots. Investing in quality Grade A real estate in India- so far - has required considerable money, connections and comprehensive knowledge, keeping the options open only to high net worth and ultra high net worth individuals. Not everyone has the cash on hand to buy a home or office, renovate or remodel, and then either rent it out or flip it. The commercial real estate space especially, has been a playground for large corporate entities and wealthy investors only- The high prices and complex investment process keeps retail investors from investing in big-ticket commercial real estate assets. Retail investors and middle-class investors were both hesitant and incapable of investing in large commercial projects.
Fractional property investment has emerged as a promising concept, owing to its low risk and high return properties serving as a boon for retail investors to make profitable investments that would provide long term capital appreciation as well as stable monthly return. Although Fractional Ownership of real estate has been in trend in the USA and Europe for a long time, this is picking up pace in India. The fractional ownership market in India is expected to grow 16% year-on-year and reach $ 3 Bn in the next few years.
Fractional real estate investing can carry risks, just like any other investment. It is essential to do your research and understand the potential risks involved before investing in fractional real estate.
Raghu Sekhar Kesani
Fractional ownership in real estate gives you a stake in the real estate and makes you a part-owner. Let us understand this with an example. An asset management firm is managing a Grade A commercial property worth Rs 20 crore, leased to a large MNC. They invite 100 retail investors to invest Rs 20 lakh each and earn fixed monthly returns as well as capital appreciation at the time of exit, in proportion to their investment. This is fractional ownership. The asset manager lists a range of such properties, as potential investments, on a tech enabled platform. The minimum ticket size for each investment is decided, and investors are invited to buy portions of the asset as per their capacity and risk appetite.
Fractional real estate investing is one way to boost your passive income and break into real estate investing. It’s a great option for investors with limited funds who don’t want the burden of owning and maintaining an extra property, but it does come with work. Before you fully dive in, calculate the possible returns to make sure you’re maximizing your investment potential.
