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The real estate industry offers fractional ownership that allows multiple investors to share a single property. This approach is popular among investors seeking to diversify their portfolios without purchasing a property.
What is fractional ownership?
Fractional ownership is a form of collaborative investment where a group collectively purchases a property, with each owning a fraction or a share of the asset. The arrangement enables investors to pool their resources and acquire high-value properties that may otherwise be out of reach for individual buyers. By dividing the cost of the property among multiple owners, fractional ownership lowers the entry barrier in real estate investment.
Things to keep in mind before investing in fractional ownership property:
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Research
Research the fractional ownership partner or firm thoroughly.
Check the background of key investors and their financial position.
Ensure the facilitator is backed by a financially sound team.
Property
Decide whether you want to invest in residential, commercial, or industrial properties based on your risk tolerance and investment goals.
Prime locations offer better rental yields and appreciation.
Review the financial projections, including expected rental income, appreciation potential, and associated costs.
Legality
Verify if the facilitator has permission to work as a fractional investment facilitator.
Fractional ownership is structured through Special Purpose Vehicles (SPVs) or Real Estate Investment Trusts (REITs). Ensure the investment is legal and compliant with regulatory requirements.
Look for a fractional investment opportunity with a tech-enabled management system. Ensure the investment can be tracked online.
Opt for easy exit options and no hidden clauses.
“Similar to buying stocks, fractional investment in real estate via publicly listed REITs offers access to such assets at minimal investment amounts. For example, a unit of Embassy Office Park REIT is available at Rs 365. This is one of the largest REITs in India and buying a unit makes you a fractional holder of predominantly leased-out 45 million sq ft of office space. Over the last 12 months, this REIT has given a dividend yield of 5.8 per cent and a price appreciation of more than 20 per cent,” said Nikhil Aggarwal, founder and chief executive officer at Grip Invest.
Fractional ownership has disadvantages. One is the limited control over the property – decisions regarding its management and use are typically made collectively by all owners. Disagreement among co-owners can lead to complication and conflicts. Furthermore, the liquidity of fractional ownership shares may be limited compared to other investment vehicles, as finding a buyer for a fractional share can be more challenging than selling an entire property.
