Fractional ownership in real estate refers to a shared ownership structure of commercial properties. This approach involves a collective of investors combining their funds for investment. These substantial commercial assets were traditionally beyond the reach of individual investors. However, fractional ownership real estate firms now enable investors to participate and gain from property appreciation.
Fractional ownership, specifically within real estate investment, has gained significant popularity in the Indian market. This trend has increased inclusivity in the real estate sector through fractional ownership arrangements.
This advancement empowers retail investors to partake in previously exclusive and highly lucrative real estate opportunities. For those interested in entering the realm of investment, the question of where and how to commence might be on your mind.
To explore the avenues of initiating your journey into fractional ownership real estate investment in India, continue reading ahead.
Types Of Fractional Ownership In India
Even though fractional property investment is a recent concept in India, it has quickly gained traction among investors who seek a flexible approach to real estate investment. Given the substantial cost of real estate and the limited financing avenues available to small-scale investors within India, the concept of fractional ownership holds significant allure.
The prevalent forms of fractional real estate investment in India encompass the following:
1. Joint Development Agreements (JDAs):
Within India's real estate sector, a commonly observed instance of fractional ownership arises in the form of a Joint Development Agreement (JDA).
This agreement establishes a contractual relationship between the landowner and the developer, outlining the collaborative effort toward land development and the subsequent distribution of proceeds generated by the finalized property sale.
Through financial contributions to the project, investors gain the opportunity to engage in a JDA, thereby entitling them to a share of profits in proportion to their invested amount.
2. Real Estate Investment Trusts (REITs):
Within India, Real Estate Investment Trusts (REITs) represent another prevalent manifestation of fractional property investment. REITs refer to publicly listed entities engaged in owning and overseeing a collection of income-generating real estate assets.
Through the acquisition of REIT shares, investors can garner dividends corresponding to the earnings generated by the real estate holdings held by the REIT entity.
However, there are certain points of distinction between the fractional ownership in India and the REITs.
REITSFractional OwnershipTrusts are SEBI-regulatedThey are not SEBI-regulatedInvestors are mandated to invest 80% of their money in the income generating assetsThere are no such mandatory norms hereInvestors are not charged with an upfront processing or maintenance chargeThere are brokerage and maintenance chargeInvestors can not choose their property to invest inInvestors are free to choose their property of interest
3. Fractional Ownership Platforms:
Lately, there has been a surge in the popularity of fractional property investment platforms, often recognized as real estate crowdfunding platforms, within the Indian landscape.
These avenues provide investors with the opportunity to explore a diverse array of properties and make investments of their preferred magnitude. Subsequently, each investor holds a proportionate stake in the property, entitling them to a corresponding portion of the rental income.
4. Co-working Spaces:
Fractional ownership in India’s top-tier cities like Delhi, Mumbai, Bangalore, and Pune has gained a lot of interest in co-working spaces. Even though singular entities usually own these spaces the investors can have fractional ownership of the shares.
Conclusion
When considering investments in premium properties within the Indian market, the choice between engaging in fractional investing is contingent upon your specific investment goals, your readiness to bear risks and your current financial standing.
Opting for fractional real estate investing can hold significant appeal if your aim is to expand the scope of your investment portfolio by participating in multiple properties without committing to the entire purchase cost.
This approach can also hold allure if your intention is to invest in upscale properties that would be beyond your affordable range if purchased in full. Through fractional ownership, you stand to gain from rental proceeds and the potential appreciation in value by investing in a segment of a property.
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