what is fractional ownership and how it works?

Let’s understand What is Fractional Ownership and How it works

Fractional Ownership is not new investment opportunity in Real Estate it was followed in day to day life. It is a concept where like minded investors pool funds and invest into High end Value assets. The asset may be residential or commercial properties both have advantages and disadvantages. This type of investment is possible through forming SPV (Special purpose Vehicle) it can be private limited Company, LLP or Public Limited Company. The best part is that the entire asset is managed by asset management company who are expertise in this field. The Prop Tech company is responsible for all documentation, Compliance and negotiation with developers. Investor can be on boarded through digital platform so need to visit for documentation. Management companies have different investment modules. 

Residential Fractional Ownership in India

What is Holiday Home Investment Module and How it works?

In this Module the property are located in Holidays destinations and cost of property is divided into equal amount i.e. equal fractions. 

Let’s understand with an example of Property cost Rs.1.10 Cr.

This property cost is divided into 11 equal fractions like 10 Lacs of investment for each investor. In this investment option total 11 investor can take ownership of this property by investing 10 Lacs each. The management company acquaire this property from developer with negotiation and register this property on 11 Peoples Company name where all 11 investors becomes share holder of this property. The investor can check their names on ROC site as this is formed legally through Pvt. Limited Company

Advantages for Investors in Equal Fractional Ownership Module 

The entire process is managed by asset management company like formation of company and on boarding of 11 investors. The Major advantage of property is that the furnishing and maintenance of property is taken care by asset management company. 

• You Own this property with fraction of cost like above example you can own Rs.1.10Cr property at cost of Rs.10 Lacs Only.
• You Can use your property any time you want. Not only this you have option to use other properties in different location that is free of cost.
• Every owner gets usage rights of 30 days in a Year where investors gets rental returns of unused days which is approximately 10% of your investment value.
• There assets are located in demanding location so you will have advantage of property appreciation which vary from 12% to 16% IRR minimum per year.
• Every owner gets access to mobile application with unit name where investors can see real time transaction like what is rental income generated by property on day to day basis also with real time availability of property.
• The major advantage of fractional ownership is that you can liquidate your share anytime you want at increased value.
• These properties are managed by Hospitality professionals with very minimal management fee which vary from 1% minimum of your investment in which all maintenance cost of property is covered.
• Currently you have options of investment at Goa, Lonavala, Uttarakhand, Himachal Pradesh and Lucknow with minimum investment of Rs.5Lacs.

Advantages for Investors in percentage Fractional Ownership

In this investment module the investors can own this property by investing fraction of percentage in property. 

For example, if the property cost is Rs.60 Lacs which is fully furnished you can own this property fraction by investing as in following matrix 

• Invest 5% value of Whole property cost with Rs.3 Lacs where you will get 15 days usage rights. 

• Invest 10% value of whole property cost with Rs.6 Lacs where you will get 30 days usage rights. 

• Invest 15% value of whole property cost with Rs.9 Lacs where you will get 45 days usage rights. 

• Invest 20% value of whole property cost with Rs.12 Lacs where you will get 60 days usage rights. 

The major difference between both modules is that one has equal investment option and other have percentage investment option. In above module you have advantage of property shares which are transferred to your demat account. You can mortgage your shares for loan facility also.  

Currently fractional ownership investment options available for under construction property and ready to move properties with flexible installment options for both types of properties.

Is it a good investment option compared to other investment options?

How it is Good Investment option as compare to fixed deposit, Stocks and full ownership. Lets understand as follows 

• PE RATION: PE ratio for owning fractional ownership is very low i.e. 15% compared to fixed deposit 18%, stocks 45% and full ownership 30%.
• CAPITAL GAINS: In terms of Capital Gains fractional supersedes all with Hight Capital gains which average 15% IRR.
• ROI: Fractional ownership not only have advantage of returns on investment addition to this will have lifetime holidays in all properties.
• LIQUIDATION: very easy with high returns compared with full ownership 

How Commercial Fractional Ownership Works ?

Fractional Ownership in commercial is same as residential the only difference is that cost of owning the commercial property is high because the commercial fractional ownership investment option is available for industrial projects, commercial warehouse and office spaces. Currently price of CRE in fractional ownership for retail investors starts from Rs.25 Lacs for male investors and Rs.10 Lacs for women investors.

Advantages of Commercial Fractional ownership

• The investor will get fixed rental income on monthly basis.
• High Capital appreciation due to demanding location 
• Assured and secured Rental as compared to residential fraction ownership.
• More advantageous due to tenant lock in period which vary from minimum 5 Years to 9 years.

Disadvantages of Commercial Fractional ownership

• Very limited options available in market 
• No usage rights of property.
• Liquidation is little bit difficult as compared to Residential Fractional ownership due to high investment amount.

World’s Greatest Books For Personal Growth & Wealth (Set of 4 Books)

The conclusion of above information is that if you are looking for your dream holiday home at very minimal cost and also wants to earn short term rental from your property the only option is Fractional Ownership. This is new age investment opportunities for like minded people who wants to divercify their investment portfolio. Commercial Fractional Ownership is suitable for those investors who are looking for monthly stable returns with high capital gain. Investors are advised to stick for minimum 5 years as long term investment option for good returns on their investment.

You also may interested to read articles below

• Vastu Shastra Science or Supertition ?

• Business Ideas without Investment 2022