Fractional Ownership In Indian Real Estate: What Is The Big Picture?

In India, real estate property is the single most desired investment for all, we tend to save up our lifetime’s worth of fortune for the one fine day when we can finally afford our dream property. This is not just a very big dream but it is also a very impractical and outdated way of using your hard-earned money. Fractional ownership in real estate is a modern-day investment idea wherein investors can invest an affordable and pocket-friendly amount of money to become owners of high-end properties. It is slowly gaining popularity as the modern real estate investment model.

What does fractional ownership mean in real estate? Why is it gaining popularity?

Fractional ownership of real estate is an investment model where a group of investors comes together to pool their assets to raise funds for purchasing real estate property together. Each investor becomes a fractional owner of the property. It is the ideal form of investment because all investors share the expenses as well as profits and financial burdens related to the property. 

Real estate investments have always been considered as profitable forms of investment due to the high asset appreciation, but at the same time, investing in real estate requires large sums of money which makes the asset class inaccessible for most investors. Fractional ownership of real estate allows you to invest in properties for personal use and also commercial gains, such as investing in private yachts, or Special Purpose Vehicles, etc,  making high-end purchases and investments accessible to people from all financial backgrounds. 

The demand for fractional ownership is expected to grow in India as more and more MNCs move their bases to India.  Fractional ownership has also been considered one of the best investment options for senior citizens. 

Fractional Ownership Models

Joint Ownership of Asset

• All owners have the right to use the fractional property.
• They can do so without adversely affecting the rights of other investors. 
• If a co-owner decides to sell off their share, they are free to do so at any time with the consent of the co-owners. 

Cooperative Model

• Interested investors come together to create a cooperative society for purchasing assets in the name of that society. 
• All investors must be members of the society and the fractional owner of their properties.
• If a fractional owner wishes to sell off their shares, it will be transferred to the new fractional owner. 

Company Structure

• In this investment model, investors create a company structure and then purchase assets in the name of that company. 
• The company has to comply with the regulations and provisions of the Company Act of their respective companies. 
• A company model helps save on stamp duty, but it also comes with other responsibilities. 

Trust Structure

• Here, all interested investors create one trust, the author of the trust deed is the property seller.
• A seller executes the deed based on the specific guidelines and directions, for the advantage of all fractional owners.

Taxing Fractional Property

As Fractional ownership is still in its nascent stages, many rules don’t exist related to taxing, but as the investment method gains popularity, the government can apply some tax implications.

The tax treatment will depend on the following. 

• Whether the property is used for personal use or rented out.
• Whether it is used by co-owners or not. It is still considered personal use if a co-owner pays the rental fee.
• Days spent on repairing property will not be considered personal use. 
• Use by a non-owner under home exchanges or swap will still be considered personal use. 
• On days when the property is available for rent but is unoccupied will be considered a rental day.

Fractional Ownership In Commercial Real Estate 

CRE or Commercial Real Estate is a model that seeks to offer partial ownership of physical assets. These include Grade-A commercial properties leased by MNCs, such as banks, warehouses, factories, or other IT establishments. These already have tenants in most cases, and unlike residential settings, commercial tenants don’t usually vacate their premises on short notices, instead, a property can stay occupied for more than 10 years by the same company. Not just that, an MNC will always pay rents on time and keep the place up to date and maintain it well in most cases, this leaves the investors with a large sum of profit, and fractional ownership brings such assets to the smaller investors. 

Be it retirement planning, or generating a passive income, fractional ownership is very rapidly gaining popularity in India. Ownership of land does not just ensure security, but it is also considered as a status symbol ensuring our positions in the uppermost strata of the community. But due to the increasing population, the most reliable asset class has become scarce and unavailable to most. 

While CRE is an ideal investment as it generates a regular rental cash flow, it also requires a large sum of money and good connections, that is why CREs are mostly purchased and regulated by HNIs or Ultra HNIs (High Net Worth Individuals). Middle-class communities never get to enjoy the same profits, but fractional ownership, brought to you by reliable investment platforms like Assetmonk, can help you invest in high-end commercial real estate at a fraction of the original price and also enjoy the perks of an owner. 

You can purchase a fraction of a  CRE worth Rs. 100 Crores at just Rs. 25 lakh and become a fractional owner of that property. Since the minimum limit is so low, investors from all backgrounds find it easier to invest here. 

Fractional Ownership in India 

The fractional ownership market in India is seeing a steady rise, as the CRE market is estimated to grow 16% in the coming years. This will increase the demand for fractional property.  One of the reasons for this boom is the growing demand for office spaces, increase in large institutional investors and MNCs, and other commercial projects moving bases to India. These factors are likely to contribute to high capital appreciation in the near future. 

But investors must also remember that fractional ownership is a relatively newer idea in India and sometimes, the investment can lack transparency and communication amongst investors.  Hence it becomes very important that investors take due care before moving forward with any type of investment. 

Many people confuse fractional ownership with REITs, but these are two different ideas. While fractional ownership allows investors complete freedom to choose the type of property they wish to invest in, REITs investors have no control as the management company chooses the asset for them.

While fractional ownership is part ownership, REITs are a range of assets managed by a company and facilitated through mutual funds. An investor has limited freedom when it comes to REITs.

While making any form of investment, the priority must be to choose a smart and reliable investment platform. Assetmonk offers high-end A-grade investment opportunities to investors interested in fractional ownership and crowdfunding. They promise high liquidity, transparency, and IRR of 12-21%.