Rs 4K cr and rising: How fractional ownerships are revolutionising realty

Fractional ownership platforms (FOPs) in real estate are gaining traction in India, commanding over ₹4,000 crore in assets under management, industry experts said.

FOPs help retail investors own commercial real estate through an alternate route.

Market regulator Sebi’s decision to allow the setting up of small and medium Real Estate Investment Trusts (REITs) is expected to regulate and fuel growth in this segment.

Under this model, the property is jointly owned by a group of individuals, in which each individual is the co-owner of the property as all of them have a fraction of the property. It is also termed co-ownership or shared ownership. 

Ownership, profit, and capital appreciation are distributed among the shareholders.

Multiple industry reports indicate that the market size of fractional ownership properties in the country is increasing at an annualised rate of 10.5 per cent, and is expected to expand to $8.9 billion by 2025.  

“Fractional ownership is considered a safe investment due to its ability to address two significant issues: making real estate assets financially accessible and ensuring optimal asset utilisation. Choosing the right fractional ownership platform requires thorough due diligence,” said Saurabh Vohara, founder and chief executive officer (CEO) of ALYF, a Mumbai-based proptech startup.

Fractional ownership startup hBits said the model is gaining momentum over the years, and more than Rs 4,000 crore of A-grade properties have embarked on the FOP route and sold to investors.

“We believe that the approval of the framework will further enhance transparency and bolster investor confidence, promote democratisation in the ecosystem, and will attract a larger pool of retail investors with minimum investment threshold being reduced to Rs 10 lakh,” said Shiv Parekh, founder, and CEO of hBits.  

Bengaluru-based Strata said that similar to REITs, fractional ownership involves multiple investors focusing on individual assets.

Firms analyse market trends, list assets with growth potential, and form Special Purpose Vehicles (SPVs) for managing investments, for commercial properties with lease agreements of three years or more.

Additionally, flexible exit options are provided by FOPs on their platform allowing investors to either sell their stake to an existing pool or source an external buyer.

“Specialty commercial properties with extended lease terms can yield up to 8-10 per cent rental returns, translating to an impressive 16-20 per cent internal rate of return over five years. Investors can diversify across asset sub-classes like offices, warehouses, and retail space. They get regular monthly rental income on the investments made which acts as passive income for the investors,” said Sudarshan Lodha, co-founder and CEO of Strata.

With the upcoming regulatory guidelines, fractional ownership has become one of the safest bets to place in the commercial real estate space.

Strata said investors are increasingly drawn to the rapidly growing real estate market, particularly in the commercial sector. Fractional ownership has emerged as an appealing avenue offering attractive returns and stability.

“Upon the introduction of fractional ownership of real estate, investors were intrigued and eagerly explored this new avenue,” Lodha added.

WiseX, a Delhi-based investment platform, believes FOPs allow retail investors to participate who are otherwise deprived of institutional-grade investments.

“Typically, retail investors are deprived of institutional grade investment opportunities and are forced to earn a mere 2-3 per cent rental income from the investment in residential real estate. To accelerate the growth of fractional ownership in India’s real estate market, a focused approach is crucial. Raising awareness and educating investors is key; informed decisions drive market confidence,” said Aryaman Vir, CEO of WiseX.