Fractional Ownership of Commercial Real Estate: A promising prospect in India

Fractional Ownership of Commercial Real Estate A promising prospect in India

Fractional ownership is revolutionizing the Indian real estate sector by democratizing investment opportunities and granting retail investors access to high-value commercial properties. With its potential for high returns, ease of tracking, and diversification benefits, this investment model is rapidly gaining popularity.

According to a report by Knight Frank, the market size of fractional ownership in India was USD 5.4 billion in 2020 and is projected to reach USD 8.9 billion by 2025, growing at a CAGR of 10.5%.

Commenting on the advantages and its future prospects in India, Nayan Raheja of Raheja Developers said, “Fractional ownership offers significant advantages for investors looking to tap into the potential of the commercial property market. It provides high appreciation potential and easy tracking. Commercial real estate investments have a track record of delivering excellent returns, and with the digitization of the real estate industry, tracking fractional investments has become more convenient than ever.”

Raheja added, “We are the first company to provide Bank Secured Returns up to 12% for 6 years to fractional ownership buyers in the country. The scheme also provides investors peace of mind to sub-assign the leasing rights to professional IPCs to manage the asset on their behalf to create a lifetime of revenue stream.”

Online platforms and technology-driven solutions allow investors to monitor their fractional ownership, enhancing transparency and providing greater convenience.

“Fractional ownership grants retail investors access to Grade A properties that were once exclusive to institutional investors. These high-quality commercial properties, known for their prime locations and superior features, offer the potential for attractive returns and long-term value appreciation,” said Ashwani Kumar from Pyramid Infratech.

Additionally, fractional ownership allows investors to purchase a fraction of a large-scale property, allowing for greater diversification of investment portfolios and reducing risks by spreading investments across different assets.

Ankit Kansal, Managing Director, 360 Realtors, said, “Fractional ownership provides an avenue for portfolio diversification beyond traditional investment instruments like fixed deposits (FDs), gold, and residential properties. Investors can achieve a more balanced and diversified investment strategy by including commercial real estate through fractional ownership. In normal circumstances, a retail investor can’t think of investing in high-ticket commercial assets such as Grade-A offices, warehouses, industrial plots, hotels, etc. However, with the help of pooled investment approach of fractional ownership, even with INR 10-20 lakh, one can invest in such an asset and earn higher rental yields and IRR. Presently the overall market is sized at INR 4000 crore, climbing from INR 1500 crore in 2019. The aggregate potential is much larger. In the Grade-A office asset alone, there is an untapped market of INR 550,000 crore.”

Non-resident Indian (NRI) investors find fractional ownership particularly appealing due to the professionally-managed environment and the potential for generating rental income.

Fractional ownership offers NRI investors the opportunity to invest in high-quality assets in India while benefiting from the expertise of management companies. This attracts NRI investors looking for stable and rent-generating assets in their home country.

However, it’s essential to consider a few factors before engaging in fractional ownership. Firstly, financing options for fractional ownership properties are limited, with only a few banks offering mortgages. Investors may need to explore alternative financing avenues to secure the necessary funding for their investment.

Additionally, fractional ownership involves joint ownership, which means that all ownership partners must make decisions regarding maintenance, repairs, and decor collectively. This process can sometimes lead to delays and challenges in reaching a consensus.

Furthermore, the sale of a fractional property requires the approval of other fractional owners, reducing the flexibility and freedom typically associated with owning property outright.

Despite these considerations, fractional ownership remains an attractive investment option for retail investors seeking exposure to India’s commercial real estate market. By carefully weighing the benefits and considerations, investors can make informed decisions and leverage the potential of fractional ownership to diversify their portfolios and access high-value properties. As the market grows and financing options expand, fractional ownership is set to thrive in India, offering a viable avenue for individuals to participate in the lucrative commercial real estate market.

Source : FE

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