In this article, you will get to know the advantages and disadvantages of fractional ownership. First let us understand what is this fractional ownership. People in India think twice before investing in real estate, stocks, bonds and other huge investments. However, the world is slowly shifting towards fractional ownership, due to increasing volatility and risk in real estate and the fall in the prices of properties.
So, what is Fractional Ownership?
It is a modern move to take property ownership by investing in real estate. Fractional ownership has a class of investors who do not know each other, yet come together to own an expensive and high-end property with their investments. It gives an opportunity to investors to take ownership of an expensive property at a very affordable price.
It is a low risk and easy way to take ownership of a property at a low cost. In this type of investment, one can fulfils its his/her dream owning dream holiday home at a very low cost.
Let’s Know what are the advantages of fractional ownership.
1. You can take ownership of expensive property at very low cost
As we all are aware that fractional ownership is a new age real estate investment option in which you can take ownership of a high value property at its fraction of cost. It is possible to invest in a property by people of the same ideology. There are some companies in the market that work in different investment models.
There are some companies in which you can take ownership of the property by investing 5% to 20% of Total cost of Property including furniture and Taxes.
Let us understand this with an example.
Example 1: A property which is fully furnished with market value is ₹ 1.10 crores, this Entire property can be owned by 11 people by investment is ₹ 10 lakhs each. In this all 11 people have equal rights to use property to stay and Rental Income.
Example 2: An investor can invest 5% Amount of Entire property by owning Entire Property as mentioned in Example 1, by investing ₹ 5.50 lakhs, in this way you can invest 5% to 20% in each property to take ownership.
In both the examples the asset management company plays very important role. Asset management Company do thorough study of Location and its future growth. In this concept a private limited or limited liability or public limited company is formed in unit name. Each investor becomes a shareholder of that property or becomes a partial owner in simple language.
2.highest returns rental income
In fractional ownership the asset management company manages these types of properties and these properties are mostly located in holiday destinations like Goa, Uttarakhand, Himachal, Lonavala where most of the people like to celebrate the holiday. These properties are converted into Luxury Hotel Rooms and Rented out on daily rental Room like Hotel rooms. Normally Rental Income is distributed on annual return basis to the investors.
There are possibility you can also get returns of around 10% to 25% per annum. Therefore, it is a good option for those who expect more returns than the investment options available in the market.
3.Lifetime Free Holiday Opportunity Anytime Anywhere
Fractional ownership is the only one option in where you will get a lifetime holiday option for investors because of this, you can celebrate the holiday anytime and anywhere in a year. Anywhere means where the asset management company managed properties. As this is community base model so you have leverage to exchange your destination with anyone. Not only you but your close relatives and friends can also use that destination without spending any additional money.
4. High capital appreciation on your investment
Considering the current Real Estate Market, you can get capital appreciation of at least 8% to 20% per annum on your investment. These Properties are located at High Demand destination and these properties belongs to a good real estate developer who has earned a good name in the market. Other reason for High Capital appreciation also resorts theme project where you have facilities swimming pool, garden, library, Yoga Center, Children’s Play area etc. Another reason for high capital appreciation is top class furnished property like 5-star Hotel.
5.Assured Monthly Rental Returns
Assured Monthly Rental Return option is available in Commercial Fractional Ownership Properties. Commercial Fractional Ownership mostly covers warehouse, factory and office space. All of these properties are given on lease with a fixed lease tenure, mostly 5 years to 9 years. You will get the assured rent every month. The asset management company also guarantees you returns ranging from 8% to 10% every year. This is best option for those investors who are expecting returns every month. In this option normally, investment starts from ₹ 25 Lakh onwards for retail investors.
6.Investment Options Holiday Homes and Commercial Real Estate
Fractional ownership has options for all types of investors, such as holiday home options for those who wish to invest less. Holidays homes investment options starts from ₹ 2 Lakhs and commercial fractional ownership options for investors who wish to invest high starts from ₹ 25 Lakhs.
7.Flexible exit option without any penalty
Fractional ownership gives you an easy exit option. Whenever you have an emergency of finance, you can easily exist by selling your share. Which is very easy, you don’t have to wait till the entire property is sold. You don’t need any owner’s permission to exist as you are a shareholder of your property. This way you can exit whenever you want i.e. without penalty like Bank deposit.
8.Very easy to liquidate
As per the information above, you do not have to take permission from anyone to exit from invested property you can decide the price at which you want to sell your share. Liquidation is easy because you don’t have to wait till the entire property is sold. You have to sell your share (ownership) only and due to the presence of many such investors in the market, it is easy to sell your investment in a very short time and one good thing is that the asset management company supports you in the same. It’s easy to liquidate because of its Low Value Comparatively owning Whole Property of High Value.
9. property management by a professional company
The fractional ownership option always assumes the responsibility of taking care of the property by a professionally experienced asset management company. Hence, there is no need to worry about your property’s care and compliance. Management Company takes responsibility of everything from price negotiation of property on behalf of you to get low price, finding an investor and managing everything is done by the company. Your worries are completely eliminated by having your property handled by a responsible company and you become rest assured.
10. real time property growth MINITOR with complete transparency
Every investor has given access of Mobile Application of property. Which gives you added advantage of technology where you can monitor your property in real time. You can have access to book your property through this application and not only this you but you can get complete information like which day your property is booked and how much rental returns property generated etc. Similarly, you can see the entire property transaction in real time through your mobile.
11.No worries about property maintenance
The Asset Management Company is responsible for taking care of your property. Due to this, if any items in your property are damaged or broken. You do not have to worry as asset management Company takes responsibility of taking care of your property. You have to pay a very nominal fee to the management company annually, which management company includes the cost of its staff and the cost of maintenance. Mostly this fee is 1% of your invested amount.
12. Better returns than fixed deposits and full ownership
Fractional ownership gives you higher returns as compared to the investment options available in the market. Bank Fixed Deposit gives you mostly 4% net returns after deducting all taxes and full ownership gives you 3% to 4% returns but fractional ownership can give you at least 10% rental returns and 20% capital appreciation. Also it is the safest way in Real Estate comparatively bank deposit, as per bank terms no bank will pay you more that ₹ 5 Lakhs of your principle deposit amount.
13. No worries of physical document handling
In Fractional Ownership the entire work is done on a digital platform, you get all the information about your property documents present in your mobile application. You Can access your property document anytime from anywhere also added advantage is no investors need to present physically while registration process or any activity.
14. No need to pay stamp duty and registration charges
Whenever you buy or sell a property, you have to pay stamp duty and registration to the government as per the law of your state government every time but when you sell your shares in fractional ownership, you do not have to pay any stamp duty and registration every time. So, you can save 5% to 6% tax amount as compared to owning entire property.
Also understand disadvantages of fractional ownership.
Not to many options available
Fractional Ownership known to very limited people. There are very few asset management Companies available in market as people are not mentally papered to Co-owning property concept.
ROI Dependent on Market Condition
Fractional Ownership in Holiday Homes rental returns is depends on market condition even though high returns comparatively owning entire property . People are still in fear of Covid19 affect on Hospitality Sector and hesitate to invest.
Fractional Ownership is One of the most secure investment options available in the market. where you can buy a high value property at a low price and fulfill your dream of having your own holiday home. Fractional Ownership Market It is growing very fast and due to this option; retail investors are getting an opportunity to earn money from real estate which was dream for them. Though it has some positive disadvantages people are waiting for results of investment before taking decision to invest in fractional ownership. Every investment has pros and cons it totally depend upon risk appetite of investors. According to expert if have long term goal like minimum 5 years, you can invest some amount in Fractional Ownership. This is good opportunity for portfolio diversification and also double up the investment amount.
- You may also like to read Pros and Cons of Investing in Residential Real Estate
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