Real estate update: Survey shows 64% HNI investors prefer fractional ownership investment model in commercial real estate | Fractional ownership explained

Real estate update: A survey has shown that 60 per cent of overall investors (out of 6578 respondents) and 64 per cent of High Networth Individuals (2174 HNI respondents) prefer the fractional ownership model to invest in Commercial Real Estate (CRE) in India. 

The 2024 edition of the Neo-Realty survey by Neo-realty investments platform WiseX, has revealed that fractional ownership has emerged as a new investment model in India over the last couple of years, and CRE is a growing asset class that allows investors to generate steady passive rental income for the long term along with capital appreciation. 

Substantiating this, a recent report by Knight Frank also stated that the market size of fractional ownership properties in India has grown by 65 per cent from 2020 and is soon to reach USD 8.9 billion by 2025.

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Recent amendments in the regulations of REITs to include SM REITs also add to the confluence on the rise of fractional ownership. 

The WiseX survey of affluent investors shows that 60 per cent of investors who haven’t previously invested in Fractional Ownership believe regulatory support from SEBI has bolstered their confidence in Fractional Ownership investments. 

Although investing in commercial real estate has always been accessible, enhanced regulatory oversight has further solidified their trust.

The survey suggests that Bengaluru is the top preferred location for HNI investors (~31 per cent) to make fractional ownership investments, followed by Pune (~24 per cent); Mumbai (~22 per cent) and Delhi NCR (~13 per cent). 

The survey also reveals that 61 per cent of investors found equities to be the most rewarding in the last financial year, followed by innovative, new-age real estate investments like REITs and fractional ownership (45 per cent), mutual funds (39 per cent) and traditional real estate (35 per cent). 

Moreover, 69 per cent of HNIs are planning to increase their investments in real estate opportunities, demonstrating a bullish outlook on the sector.

The survey also indicates that real fractional ownership investments through tech platforms offer a great track record of timely payments which makes it a foremost reason for high investment in these models. Of the investors who haven’t made a Fractional Ownership investment thus far, the biggest apprehension turned out to be liquidity concerns for about 30 per centinvestors. 

The survey revealed that the majority of investors favour real estate investments with a medium-term perspective of 1-3 years (20 per cent) & 4-6 years (55 per cent).

Speaking about the Neo-Realty survey, Aryaman Vir, CEO of WiseX, said, “Over the last decade, the investment landscape in India has undergone a transformation in demographics, technological progress, and there has been growth in individual disposable incomes. Investors are now increasingly open to exploring new investment options for better returns. Our 2024 edition of the Neo-realty survey provides insights into the alternative investment space and industry trends, highlighting how affluent individuals across various income levels are shaping their financial strategies. The recent SEBI guidelines on SM REITs enhances layers of liquidity and safety to investing in real estate, and also makes it highly accessible to investors.”

“Despite an inclination towards equities & mutual funds, there is growing evidence of interest in investing in real-estate investments amongst investors as it is a stable asset class. As a leader in the fractional ownership industry, it is heartening to see the sentiment towards fractional ownership growing positively over the past 3 to 4 years. While Bengaluru, Pune, Mumbai and Delhi NCR are the leading markets for real estate investments in India, we continue to witness high demand for real estate investments from other tier 1 & 2 cities as well. We believe the recent SEBI approval on regularizing fractional ownership framework, along with reducing the minimum threshold of investment to INR 10 lakhs will further help in democratizing real estate—a traditional asset class—to more investors,” he added.

What is fractional ownership in commercial real estate?

Fractional ownership in commercial real estate refers to a structure where multiple investors collectively own a portion of a property. Instead of one entity owning the entire property, it is divided into shares, allowing several investors to purchase a stake in it. This model enables individuals to invest in high-value commercial properties, such as office buildings, retail centers, or apartment complexes, without needing to buy the entire property themselves.

Typically, a fractional ownership arrangement is facilitated through a legal entity like a limited liability company (LLC) or a real estate investment trust (REIT). Investors purchase shares of this entity, which in turn owns the property. Each investor receives a proportionate share of income generated from rents or property appreciation, as well as bearing a proportional share of expenses and taxes.

Fractional ownership can offer several benefits, including lower entry costs, diversified investment portfolios, and reduced management responsibilities compared to sole ownership. However, it also comes with challenges such as coordinating decision-making among multiple owners and potential conflicts over property management and usage. Overall, fractional ownership provides an opportunity for individuals to invest in commercial real estate with greater flexibility and lower financial barriers.