What is fractional investing in real estate and how it works: All you need to know

Ever wondered how to invest in high-value assets without breaking all savings? With fractional investing, anyone can invest in high-value properties and manage the risk while generating a handsome rental yield.

Fractional investing holds the key to regular income with properties prices touching new highs. Fractional investing allows a person to own a fraction or a share, of an asset. In other words, it typically refers to small investment holdings of real estate assets. This also opens doors for many small investors to inaccessible markets. 

The concept of fractional investing is touted to be one of the favoured investment options for accessing high-value properties. With its potential for high returns, ease of tracking and diversification benefits, this investment model is rapidly gaining popularity and democratising investment opportunities.

According to global real estate consultant Knight Frank, the market size of fractional ownership in India in 2020 was USD 5.4 billion. Growing at a CAGR of 10.5 per cent, experts are of the view that it will reach USD 8.9 billion by 2025. This highlights the increasing demand and popularity of fractional ownership as it opens up investment opportunities to a wider range of individuals.

Advantages

With fractional investing, investors can tap into the potential of the commercial property market. It provides high appreciation potential and easy tracking. 

As real estate investments have a track record of delivering good returns and with the digitization of the industry, tracking fractional investments has become more convenient than ever.

Risk, Diversify 

According to Avneet Soni, president, Omaxe Ltd, it allows investors to purchase a fraction of a large-scale property, allowing for greater diversification of investment portfolios and reducing risk by spreading investments across different assets. This helps investors achieve a more balanced and resilient investment strategy.

“It is emerging as a game-changer. The best part is gaining access to Grade A properties that were once limited to institutional investors," he said.

Apart from this, it also provides an avenue for portfolio diversification beyond traditional investment instruments.

"Besides, it also permits diversification of investment portfolio and reduce risk by spreading investments across different assets, creating a more balanced and resilient investment strategy,” Soni added.

Rental Income 

It is also appealing due to the professionally managed environment and the potential for generating rental income. It offers an opportunity to invest in high-quality assets while benefiting from the expertise of management companies. This attracts investors looking for stable and rent-generating assets.

"Owning a property is a dream. For many, it remains an attractive investment option for retail investors seeking exposure to commercial real estate market. By carefully weighing the benefits and considerations, investors can make informed decisions. Tracking fractional investments has also become more convenient than ever due to technology," Nayan Raheja of Raheja Developers, said.

Earlier in May, SEBI had floated a consultation paper for regulating all web-based platforms offering fractional ownership of real estate assets to protect small investors. Such fractional ownership of real estate assets is proposed to be brought as Micro, Small and Medium REITs under Sebi's Real Estate Investment Trusts rules.

The proposed regulatory framework would help develop the real estate market, provide investor protection measures and lead to an orderly development of this sector and the market, SEBI had said in its consultation paper.