January 11, 2024
If you want to learn about fractional ownership in real estate, find out its advantages and disadvantages before investing. Experienced experts can help you decide if it’s the right choice for you. We will cover all the details and benefits to help you make an informed decision about investing in property.
In the world of real estate investment, there are now more opportunities than ever before. One increasingly popular option is fractional ownership. This means that multiple investors can come together to collectively own a property through fractional ownership platforms (FOPs). But is this approach right for you? Let’s take a closer look at the details, advantages, and potential disadvantages of fractional ownership.
Fractional ownership is a collaborative approach to buying a property where a group of individuals pool their resources together. Fractional ownership platforms, such as Ryzer, facilitate the search and purchase of properties. These platforms provide opportunities for investors to access real estate options that may not be feasible for them to acquire independently. Moreover, they enable co-owners to share the property with others who also hold a fractional interest in it.
To illustrate, let’s consider an example. Ten investors each contribute Rs 10 lakh, collectively amounting to Rs 1 crore. This joint investment is utilized to acquire a residential property. Some fractional ownership platforms even offer additional perks, such as a designated number of days for free stays at the property. This not only transforms investment into an experience but also adds an enticing dimension to the concept.
The applications of fractional ownership extend beyond residential properties. Some platforms offer opportunities for acquiring commercial properties for leasing purposes. ALYF, for instance, has pioneered a fractional ownership model with investments starting as low as Rs 10 lakh, widening the accessibility of property investment.
The Securities and Exchange Board of India (SEBI) has recently proposed regulations allowing fractional ownership of real estate assets. The main goal of this proposal is to ensure transparency, unbiased valuations, and standard practices, which in turn will provide greater protection for small investors. While this move has received mixed reactions, its emphasis on balancing the interests of all stakeholders highlights its significance for the industry.
Sunil Gehi, an expert from Mohans Estate Consultants in Mumbai, suggests that exclusive ownership of smaller properties is preferable to fractional ownership. According to Gehi, while fractional ownership allows you to share ownership in expensive properties, it also adds some uncertainty. As a fractional owner, you may not make all the decisions, which could make it difficult to exit the investment easily. Although companies typically guarantee buyback options, their reliability is questionable because they don’t provide irreversible bank guarantees
Furthermore, you cannot get a home loan for a property under fractional ownership. Despite these issues, fractional ownership offers the benefits of a serviced apartment experience, where maintenance and rentals are managed on your behalf.
Strata, a company that specializes in fractional ownership of premium commercial spaces, recommends taking a long-term investment perspective. According to Sudarshan Lodha, the company’s co-founder and CEO, commercial properties are stable and appreciate over time, unlike residential properties. Commercial spaces offer higher rental returns, usually between 12 and 18 percent, which translate into a combined internal rate of return (IRR) of 13 to 15 percent over several years.
Lodha advises potential investors to align their investments with clear goals that span at least three to five years. This approach involves assessing income, savings, risk tolerance, and investment objectives before entering the world of fractional ownership.
When considering fractional ownership, it’s important to remember that there is no one-size-fits-all approach. Whether you’re seeking to make quick profits or build a robust portfolio over time, having clear investment goals is crucial. Take into account your financial situation, risk tolerance, and desired outcomes. Find an approach that aligns with your needs and objectives.
The real estate investment industry is constantly changing, and fractional ownership offers a new way for individuals to invest in properties that may have been previously out of reach. However, this process can be complex. Regulatory initiatives, like SEBI’s proposal, aim to increase transparency and security in these investments.
If you’re ready to explore the world of fractional ownership and unlock the potential of real estate investment, our team at Ryzer is here to help. Whether you’re an experienced investor or just starting out, we’ll guide you through the process, present you with opportunities, and develop a strategy that aligns with your goals. Contact us today to begin your property investment journey with confidence.