Real estate has always been considered a sure-and-steady investment. But for most people, buying property is too expensive. This is where fractional shares in real estate come in. They give investors an opportunity to own a stake in a property without requiring deep pockets. This model already is being adopted by young professionals and small-time investors in India who wish to invest in real estate but do not have much money at square one.
What is Fractional Real Estate Ownership?
That’s because a fractional share in real estate is really nothing more than co-ownership of a piece of property. Rather than purchasing the entire property, several investors chip in and each own a portion of it. It’s not a single entity, but rather divided into small pieces; each one is a “fraction.” Return is directly related to the investors’ holding in the property. Such returns could come from rent income or an increased value of the property.
How Does Fractional Real Estate Work?
- A property tech platform finds a property which has high value.
- The estate is distributed in lots.
- Shares can be purchased by investors based on their budget.
- The platform in charge of the property, collecting rent and conducting maintenance.
- Profits are shared among shareholders in proportion to their ownership percentage.
“If a property is valued at say ₹10 crore and if it is cut into 1,000 pieces, the value of one share would amount to ₹1 lakh. An investor can purchase any amount of shares.
Advantages of Buying Fractional Shares
1. Lower Entry Cost
And you won’t need crores to start off with; just a lakhs. This is what brings the investment in real estate within reach of middle class investors.
2. Diversification
There is no limit to the number of properties you can own in multiple cities. This also reduces risk, because you don’t have all your money invested in a single property.
3. Passive Income
Fractional ownership enables investors to share in rental income with seeking their own property management.
4. Professional Management
The platform handles property management, tenant interactions and paperwork. Investors don’t want to deal with the daily grind.
5. Capital Appreciation
And as property value appreciates so does investors’ cut when the properties are sold.
Fractional Real Estate Risks
1. Market Fluctuations
Real estate can appreciate, or it can depreciate, based on demand, location and the current economy.
2. Illiquidity
Unlike stocks, offloading a fractional stake in real estate can also be time-consuming. You can’t always sell them right away.
3. Platform Risk
It depends on the platform that deals with the property. Without these, investors might be left in the lurch.
4. Legal Complexity
Because several investors have a share in each property, legal disputes can be problematic.
Who Should Invest in Fractional Real Estate?
Fractional real estate is ideal for investors who:
- Want exposure to real estate but don’t have enough capital.
- Seek stable rental income.
- Want to diversify beyond stocks and mutual funds.
- Prefer passive income without property management hassles.
Future of Fractional Real Estate in India
The idea is still emerging in India, but there are high hopes for its growth. “But with escalating property prices, so many more people will opt for fractional ownership of real estate.” SEBI is also in the process of introducing more stringent regulations for this model to safeguard investors.
FAQs:
Q1. Can we invest in fractional property in India?
Yes, it is legal. Many platforms are registered and regulated, but investors should check their credibility before investing.
Q2. How little can you invest in real estate?
It typically begins from ₹25 lakhs in commercial properties, but some platforms have shares starting from ₹10 lakhs.
Q3. Am I allowed to sell my fractional shares whenever I want?
It depends on the platform. Some have resale markets, but their liquidity may still be below that of stocks.
Q4. Is rental income guaranteed?
No, rental income is based on tenant turnover and market conditions.
Q5. REITs or fractional ownership: Which is best?
REITs (which stands for Real Estate Investment Trusts), can be bought and sold like stocks. Partial property ownership is direct but potentially illiquid.
