With the real estate sector expanding across key markets, driven by demand sales, investors are now more actively looking for avenues to get the best out of the bullish run. Over the years the real estate sector has become more mature due to the introduction of regulations, and this began to garner positive interest from investors. What truly democratized the sector is the introduction of investment concepts like Fractional Ownership which allows individual or retail investors to invest in high-value properties and earn fixed returns from rent-generating assets.
While alternate investment options like AIF and REITs are becoming popular in India as lucrative and effective investment vehicles, these are more focused on institutional and high-net-worth investors. On the other hand, investment models like Fractional Ownership are targeted towards retail investors who can get access to the high-value commercial segment through this model. The good news is, this kind of model is not only creating more avenues for retail investors but also opportunities for developers to explore varied funding sources.
According to a report by a leading real estate consultant, 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%. This is a clear marker of fractional ownership’s sharp growth trajectory as a viable investment avenue.
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Fractional Ownership started to become more popular amongst investors when SEBI proposed various Fractional Ownership Platforms (FOPs) to register with SEBI MSM REITs and made it mandatory to comply with some specific registration process. The information of the proposal as published by a leading real estate firm quotes that – the MSM REITs should include separate and distinct entities serving as a trustee, sponsor, and investment manager. SEBI also proposes that MSM REIT be set up as a Trust under the Indian Trusts Act, with the ability to establish separate schemes for owning real estate assets. This would be done through SPVs (Special Purpose Vehicles) constituted as a company under the Companies Act 2013. MSM REIT Scheme shall have full control and shall hold 100% equity share capital in all SPVs.
These regulatory steps proved to be advantageous to the investors as now through Fractional Ownership they can leverage benefits like fair pricing, transparent transactions and the flexibility & opportunity to exit or liquidity their investment at any given point in time.
With the digitization and tech enablement of the real estate industry, investors can also reap the benefits of easy tracking through web-based FOPs, thus making it convenient for them to make data-driven decisions. It also offers a lot of visibility which was earlier not present when the proper regulations in the real estate investment space were not in force.
Diversification is another key factor that redirected investors towards Fractional Ownership, especially after the pandemic when the stocks and commodities market has become volatile. The uncertainties arising out of the global economic headwinds also called for avenues and markets that look more promising. In contrast to this, India’s real estate market continued to show promise and the commercial segment breached record-high numbers in terms of leasing and demand. A report suggests that the Indian Commercial Real Estate Market size, which is currently estimated at USD 33.62 billion, is expected to reach USD 87.57 billion by 2028, growing at a CAGR of 21.1% during the forecast period.
As India’s ease of doing business index ranking continues to improve in the coming years, more global enterprises will set up their bases here. The global occupiers across industries IT, manufacturing, BFSI, startups and the booming service industry will need quality spaces to accommodate their employees. These will create more Global Occupier Centers (GCCs) operating from the key cities of India, thus accentuating & accelerating the demand for Grade-A office assets. In this scenario, Fractional Ownership will be a win-win proposition for developers and investors. As the sector continues to triumph, Fractional Ownership will keep unlocking newer opportunities for investors in the years to come.
(By Angad Bedi, Managing Director, BCD Group)
Disclaimer: Views and facts expressed above are those of the author. They do not necessarily reflect the views of financialexpress.com. Readers are advised to consult their financial planner before making any investment.
