Fractional Ownership in Real Estate: Is this the next big wave in investment technology?

Fractional ownership that is gradually gaining popularity in India is poised to reduce the financial burden on a single investor or owner of the property. The concept simply refers to a set-up wherein a group of like-minded people own a commercial property together and become fractional owners. This approach of purchasing an asset simply divides the expensive cost into multiple fractions allowing millennials to participate in new opportunities at a fraction of the cost previously required. Varun Mohan, Founder & CEO of Definite, explains the Fractional Ownership in Real Estate and decodes if this is the next big wave in investment technology? 

Varun Mohan says, "Millennials are tech-savvy and always thrive on ways to generate wealth via technology. Amid the digital transformation of every business sector, technology has also transformed the way of investing in fractional ownership for millennials. Fractional ownership is the next big wave in investment tech. It is not only opening up newer avenues for mom and pop investors, but also making instruments previously only accessible by HNIs, affordable. Real Estate has equipped ages of investors with wealth. In any case, it has usually been held for those with detailed information, the correct associations, and admittance to an immense measure of capital. This has continued putting resources into Commercial Real Estate (CRE) far off for most until a couple of years prior. In any case, to have a sincerely necessary edge, individuals need to comprehend that CRE ventures are a vital piece of their portfolio."

He further adds, "The substantial aspects that are basic in the most well-off people and isolate them from the rest are their Real Estate ventures. Additionally, their pay isn't allied to their time went through working and they centre on income through Real Estate. These bits of knowledge assume a pivotal part in changing the manner individuals put resources into the CRE area. Subsequently, as an answer for have particular information, the correct associations, and admittance to an enormous measure of capital; Fractional Ownership is the obligatory change going to the CRE market."

"Concept of Fractional Ownership: There occurs a quality commercial building worth 50 Crore, engenders good cash flow and is a leased asset to a verified institutional-grade tenant. Aleksa (a new age investor) is looking to participate in the kind of asset with all the above said features but only wants to do it with just 25 lakhs. Traditionally, 25 lakhs wouldn't allow Aleksa to invest in individual institutional-grade properties until Fractional Ownership. It enables to divide the 50 Cr worth assets into fractions or shares that represent equity and debt in the underlying asset. It means that this asset can now be accessed by a wider pool of institutional investors, individual investors, and fractional investors like Aleksa. Hence, enabling the new age investors to participate in new opportunities at a fraction of the cost previously required," adds Varun Mohan.

"Investing in a CRE opportunity is the choice of knowledgeable investors than any other opportunity. This is since stock markets are unstable and banking products like Fixed Deposits give capital protection but with low returns, if interrelated with the rise of economics. Thus, the investors prefer to invest in CRE as the opportunity delivers a balance of these features, has a physical underlying asset, the capability to preserve capital and generate monthly or quarterly cash flow as well," he further added.

Explaining the model, "Fractional Ownership is a model that has trapped up in various developed economies like America, Singapore, and Hong Kong and is now gaining traction in India. The fractional ownership platform delivers a portal where individuals can get together to purchase an asset, enjoy the yield it generates and finally be able to sell their fraction when they want, thus enjoying capital gains. The platform also manages the asset and simplifies any pay-outs from the asset and automatically distributes these pay-outs to fractional owners like Aleksa. In simple terms, Fractional ownership enables a person, to own a fraction of a pre-leased asset worth 50 Crore, with a small capital size of 25L, and enjoy the financial privilege like that of a 50 Cr asset owner such as an institutional-grade asset, verified tenant, and a cash flow."

On how fractional ownership helps in creating a diversified portfolio that distributes and minimizes the risk, Varun said, "Now with just 1 Cr, an investor may buy four different kinds of assets, at four different locations with the assistance of people having specialized knowledge and vast experience, to manage the asset while working on behalf of them. Aligned with the message of technology i.e. empowering people to create financial futures, and, fractional ownership, is driving equality and transparency. With PropTech platforms for Fractional Ownership, people enjoy easy access to thoroughly vetted, post-strict due diligence, stabilized opportunities in an institutional-grade physical asset having a predictable cash flow.”  "Entering into the commercial real estate segment has always seemed difficult for people having small capital available or planning to diversify the portfolio. However, with Fractional Ownership, people will be able to overcome the barriers of high capital requirement, lack of experience, and liquidity. 

The year 2021 is ending up being a hurricane one for commercial real estate. The continuous pandemic has elevated the major developments that had effectively been in progress in light of technological advancements. It likewise established the framework for various arising patterns, for example, spry workplace and working environment wellbeing that are currently slowly turning out to be more settled," Varun said.

"Presently, 2022 is going to see the commercial real estate going through retribution. Well-being and health issues are turning into a main impetus in the structure plan and development world. There is an expansion in the interest for a solid and quality structure for lease. Air quality, temperature control, and lighting levels are key elements for tenant fulfillment. As supportability drives spread and new advancements are embraced, plan firms and development organizations are growing their abilities to address arising wellbeing principles. With the workplace area opening up to additional opportunities, and recent fads getting set up, 2022 will be tied in with accepting freedoms and remaining versatile despite vulnerability. Change has consistently been steady, yet it is currently quicker than any other time in recent memory; organizations and experts that can forget and adjust to change quickly will arise more grounded," he concluded. 

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)