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Fractional Property Investment in India

What is Fractional Real Estate Investment?

Fractional real estate allows investors to enjoy benefits of owning a property like, monthly rental income and capital appreciation minus without the hassles of property management.

Whether it’s a high-end office space, a retail centre, or a premium industrial property, fractional ownership real estate offers diverse range of investment opportunities in commercial properties that were once out of reach

Investing in A-grade properties and prime locations usually required high capital investment, often upwards of 30 crore INR. Fractional ownership made these investments accessible to retail investors, eliminating property management hassles. Before fractional ownership, only ultra HNIs and institutional investors like Blackstone and Brookfield were able to invest in A- grade property and benefit from it.

Understanding Fractional Ownership in Real Estate.

Fractional ownership in real estate means buying a share of a property with other investors, rather than purchasing the entire property. This allows you to enjoy benefits like rental income and property appreciation. By fractional ownership retail investors can access A-grade properties that were previously unaffordable.

Fractional ownership offers flexibility in terms of investment size and commitment. Investors can choose the amount they want to invest and have the option to buy and sell their shares as needed. 

Fractional ownership arrangements often involve professional management companies that handle property maintenance, rental collection, distribution of income to share-holders, and even administrative tasks like filing for TDS, GST and other compliances on behalf of investors. This relieves investors of the burden of property management responsibilities.

Evolution of Fractional Investing in India.

Fractional investing in India has evolved rapidly in recent years, driven by advancements in technology and changing investor preferences. What started as a niche concept has now gained mainstream acceptance, with platforms like Strataprop, propertyshare, hBits, Aurum Wisex offering fractional ownership of real estate.

This democratization of investing has enabled individuals to access high-value assets with smaller investments, paving the way for a more inclusive and diverse investment landscape in India.

How Fractional Real Estate Investing Works?

Fractional real estate investing allows multiple investors to collectively own a share of a property.

Here’s how it works:

  • Investors pool their money together to purchase a property. Each investor owns a fraction or share of the property, proportional to their investment.
  • Fractional ownership is typically facilitated via a SPV (Special purpose vehicle, which should be a private limited (LLPs are not a good option for fractional investments. Watch our full video on why) https://www.youtube.com/watch?v=Tg5E4dwSsUg or companies that manage the investment. Investors receive shares or units representing their ownership stake in the property for private limited via shares and most platforms do 10% equity shares and 90% debentures. 
  • The property is managed by a professional management company or platform. They handle tasks such as property maintenance, tenant management, and administrative duties on behalf of the investors.
  • Rental income generated from the property is distributed among investors based on their ownership percentage. Similarly, any expenses, such as maintenance costs or fractional property taxes, are shared among investors.
  • Investors may have the option to sell their shares or units in the property. Most platforms offer secondary markets where investors can buy and sell their fractional ownership stakes.

Why Choose Fractional Real Estate Investments?

A-grade assets have the lowest vacancy and highest capital appreciation, therefore it would be prudent to invest in A-grade assets, but A-grade assets are not cheap, typically upwards of 30 Cr in metropolitan areas, which would make it inaccessible for retail investors until fractional real estate came into the picture.

1. Access to High-Value Properties

Fractional real estate enables investors to invest in premium properties that may have been out of reach otherwise. Whether it’s a prime commercial space, or prestigious holiday homes, fractional property investment opens doors to exclusive real estate opportunities.

2. Diversification of Portfolio

By investing in fractional real estate, investors can diversify their fractional Investment real estate portfolio across different properties and locations. Instead of tying up all their capital in a single fractional property, fractional investment allows them to spread the risk and potentially improve their overall fractional Investment returns. It allows you to benefit from investing across offices, warehousing, retail, hospitality, data centres in multiple high growth locations of Bangalore, Pune, Hyderabad, Mumbai and more. You can allocate your money in different properties, different asset classes and locations.

3. Affordability

Fractional ownership makes A-grade real estate more affordable and accessible. Instead of bearing the full cost of purchasing a fractional property outright, investors can own a part of it at a fraction of the cost. This lower barrier to entry allows investors to participate in lucrative prime real estate markets with less capital fractional Investment in real estate.

4. Professional Management

Fractional real estate investments often come with professional fractional property management services. From maintenance and repairs to rental management and concierge services, investors can enjoy hassle-free ownership while getting the value of their fractional Investment.

5. Flexible Usage

Fractional ownership in real estate investment, especially the fractional investment in holiday homes allows investors to enjoy personal usage of the fractional property investment while also generating rental income when they are not using it. Whether an investor is looking for a vacation getaway or a steady stream of rental income, fractional real estate offers flexibility to meet their lifestyle and financial goals.

6. Shared Expenses

Fractional ownership is not new, but it has evolved. Previously, issues like unpaid maintenance fees by one owner could burden others. Now it’s much easier with the formation of a company and the appointment of a director as one point of contact and authorised signatory. Asset managers also allocate funds towards reserves to meet any unforeseen expenses or hike in current expenses.

What are Types of Fractional Real Estate Offerings?

1. Prime Fractional Commercial Real Estate Spaces

Investors can invest in fractional ownership of premium commercial properties, mainly including office buildings and warehouses, with SM REITs we also expect opportunities in hospitals, hospitality, data centers and more to diversify their fractional Investment portfolio and capitalize on income-generating opportunities. These fractional Investment commercial properties are an excellent avenue for passive rental income.

2. Luxury Holiday Homes

Fractional property investment is also possible in holiday homes in sought-after destinations in India.

3. Prestigious Residential Properties

Investors can also go for fractional Investment real estate in residential and own a fraction of prestigious residential properties in upscale neighborhoods, offering comfort, convenience, and potential for long-term capital appreciation. While Net rental yield in residential properties is on an average 2-3%, properties rented out to co-living spaces can generate higher yields of 4-7%.

Difference Between REITs and Fractional Investment

REITs (Real Estate Investment Trusts) Fractional Investments
Publicly traded companies managing various real estate properties. Investors collectively own shares of specific properties.
Investors buy and sell shares on stock exchanges. Ownership facilitated through online platforms with SM REITs fractional properties will also be tradable on the stock exchange.
Diversified portfolios including commercial, residential, and industrial properties. Direct ownership of individual properties.
Dividends from rental income distributed to shareholders. Rental income and appreciation distributed among investors.
High liquidity with shares traded on exchanges. Lower liquidity compared to REITs currently but will improve as SM REITs is launched.

Things to Think About Before Investing in Fractional Real Estate

1. Why to Invest

Investors should figure out why they want to invest, like monthly rental income or high capital appreciation opportunities or holiday homes for self use plus potential income generation while not in use.

2. Risk Tolerance

Investors should decide how comfortable they are with the possibility of things not going as planned, like the tenant leaving the premises in which case the rental stops and property tax needs to be paid until a new tenant is found and also variation in capital value as per the market conditions.

3. Doing Homework

Raj Shah, Co-founder of Invest In Pre-lease, emphasises 3 aspects to a successful fractional investment, A-grade asset, A-grade location and purchase price below market/mark to market. Ideal due diligence should also entail a site visit, minimum 3 year lock-in, 6 months deposit and 6 months notice period amongst others.  

As conducting these assessments independently is challenging, as professionals Invest in Pre-lease provides professional advice.

4. Checking Out the Platform

Investors should also make sure the website or company they’re investing through is trustworthy and has a good history of helping people make money. Even better, engage directly with Invest in Pre-Leased as they thoroughly evaluate asset managers before beginning to work with them. Evaluation includes meeting with promoters, founders to understand their vision and ascertain their capacity for execution.

Ready to Explore Fractional Real Estate?

Fractional investment is the new era in real estate, and it can get complicated and overwhelming to decide on which is the best opportunity for you. For unbiased and trustworthy advice on the right fractional property investment opportunity for you, simply get in touch with Invest In Pre-Leased.

Frequently Asked Questions
All investments carry a certain risk, and so do fractional. All risks applicable to commercial property investments are applicable here, like tenants leaving the property, prices going down, etc., but one needs to ensure they are mitigating the risks.
When you invest through IIPL, they meet the founders and start working with asset managers only when they are convinced of the asset manager’s ability to deliver. They also undertake a physical site visit of the property and rate fractional ownership opportunities objectively on a scale of 1 to 10. Finally, they offer documentation vetting of clauses between you as an investor and the SPV (Private limited).
No, fractional ownership has existed in India in various forms, especially in sectors like logistics. Previously, groups of individuals would pool resources to collectively invest in properties, such as warehouses in logistics hubs.
However, traditional fractional ownership models faced challenges with management and maintenance. For example, if 2/10 investors could not pay the maintenance, the burden would be on the other 8, who may refuse to do that, leading to a lack of optimum maintenance of the property and tenants leaving the premises—making it a bad investment.
The modern fractional ownership format is systematic (done through a private limited or LLP), organized, and efficient. For example, they take reserves and keep them in a Fixed Deposit should the need arise for any additional expenditure.
Returns in fractional investment are distributed based on the structure of the investment, typically through a special purpose vehicle (SPV) like a private limited company. Rental income generated from the property is distributed among investors according to their shareholding percentage in the SPV.
This ensures equitable distribution of returns based on each investor’s contribution. For example, if one investor contributes 25 lakhs and another investor contributes 1 crore, returns will be distributed proportionally to their respective investments, ensuring fairness and alignment with each investor’s financial commitment.
Fully owned properties may offer certain tax benefits, such as a 30% standard deduction towards property maintenance.
However, fractional ownership provides opportunities for diversification and access to A-grade properties, A-grade location, MNC tenants for as low as 25 Lacs (Will be 10 Lacs when SM REIT is launched) properties that may be otherwise unaffordable.

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