Fractional Ownership in Commercial Real Estate: lower risks, higher gains

Real estate investment in India is undergoing a series of changes. A newly budding trend of Fractional Investment has gained acceptance in the real estate industry as a new, safe and feasible way of pocket-friendly investment and has caused extensive rebranding in the realty sector.

While the concept of fractional ownership in real estate has been prevalent in the U.S. and European markets for a long time, it is now that the Indian market is opening its arm to welcome the new concept.

What is Fractional Ownership?

Fractional ownership is a concept that allows several unrelated parties to share in, and mitigate the risk of ownership of a high-value tangible asset, usually a jet, yacht, or real estate.

It can be done for strictly monetary reasons, but typically there is some amount of personal access involved. One of the main motivators for a fractional purchase is the ability to share the costs of maintaining an asset that will not be used full-time by one owner.

The commercial real estate asset which is gaining momentum as an investment avenue for the aspiring middle class and retail investors is a crucial segment that is giving a major push to the concept.

The transactional value very well depicts the wide acceptance of fractional ownership. In a short span of 5 years, fractional ownership companies have done transactions worth INR ~750 crores across the country. Backed by innovation and high-end technology, demand and high resilience of the sector has pent-up and the confidence of investors is on the rise especially during the pandemic.

According to JLL India, despite the Covid-19 impact, out of the total fractional ownership market, approx. INR 350 crores worth of deals have been transacted or in the final stage of conclusion in the last year alone. These transactions are a mix of office and warehousing deals.  

Currently viewed as evolving asset class, the concept has been adopted by the commercial real estate industry in various forms and has opened investment opportunities for retail investors who can benefit from a diversified portfolio of asset classes. Further, it is also gaining popularity with young Indians who are looking at availing of the multiple benefits that it offers.

Benefits of Fractional Ownership

Apart from owning an institutional commercial real estate property, there are many more benefits that one can yield from fractional ownership. Some of them are:

Steady earning: Fractional ownership yields a regular rental income which is usually 2-3 times more than rental from residential units.

Investment safety: These are Grade-A quality or premium assets, thus ensures you of a safe investment.

Higher liquidity: these units can be sold at any point in time on the resale platform, thus providing liquidity.

Superior returns: If invested for a considerable time, capital gains add an unrivaled multiplier effect to overall returns with low risks.

Increased use of tech along with transparency: Transaction details like deal-specific documentation is shared with investors. They also provide dashboard access to investors for tracking their investments.

Convenient Investment: In Fractional ownership, one has no hassles of managing the asset and ease of exiting the investment. Furthermore, it gives superior access to facilities and services.

Fractional ownership in commercial real estate is expected to grow manifolds in the coming years. Apart from the office space as a primary focus segment, warehouse & industrial parks is another such asset class that is likely to attract fractional ownership companies, with the increasing demand for warehouses to cater to the ever increasing needs of the growing e-commerce industry and challenges in terms of last-mile delivery and incremental cost of maintaining forward distribution points.

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