All You Need To Know About Fractional Ownership
Not all of us can dream of owning a property of our own knowing that it comes at a price not many can afford. However, what if you are given a choice to fractionally own a property with multiple owners having a share in it? It is now a possibility. A model practiced internationally, is now gaining grounds in India, too, with many e-commerce startups emerging in this segment.
Let us explore what fractional ownership is in real estate:
In fractional ownership, multiple investors interested in one property can come together to pay for an equal share for it. For instance, if a portal lists a property worth Rs 1 crore, with 10 investors showing interest, then each can pay Rs 10 lakh to fractionally own the property.
The transaction is considered complete when all the investors have paid there share for the property.
A principal custodian of the property is then decided upon who would represent all the co-owners.
Each co-owner is issued fractional ownership certificates once the sale deed is registered. Also, the cost and access to such multi-owner properties are shared.
The Indian story
In India, the model is in nascent stages, with a handful of online real estate marketplaces offering this service. These are mostly tech-based startups that have leveraged the technology to create a platform where like-minded investors could come together to fractionally own a property. While still emerging as a model of trust among buyers, there have been a few successful transactions, too. One was completed in Pune’s Satara by a Pune-based fintech company in August 2017. The company had sold a Rs 10-lakh shop to 20 investors.
Another Bengaluru-based startup is now ready to spread its wings to Australia and the UK. The company aims to manage nearly $3 billion worth of rental properties over the next three-four years, foraying into the British and Australian markets this year. At present, the company has 20 properties worth Rs 70 crore listed on the website.
The market for such properties is limited to a commercial segment for now.
What’s up internationally
Internationally, fractional ownership is being practiced for a while now. The investors invest in commercial as well as residential properties to enjoy high risk-adjusted returns. Such a trend is more seen in expensive commercial properties and destination or vacation properties. High-ticket properties are more in demand and not for just investment but also for leisure.
The challenges in this model include:
*The division of usage, if the multiple owners wish to use the property.
*The division of who will be taking care of the various expenses on the property. This includes bills, repairs and regular taking care of the property.
*When to sell is another challenge that multi-owners face. What if not all come to a conclusion of selling at the same time?
*In case the property is a vacation home, there can be a point when there is an overlap of usage.