Ever wondered about owning those piercing skyscrapers, glass buildings, and towers? Every person has thought of owning these luxurious properties at least once a lifetime. But these apartments cost crores of rupees, and a question of affordability restricts us from buying them.

Luckily, real estate sector has given its investors a chance to invest in these expensive properties through fractional ownership. By offering individual investors the chance to own Grade A commercial real estate, fractional ownership is stirring a storm in the real estate sector.

Demystifying fractional ownership-

When a set of investors collectively own a pre-leased commercial property in fractions, it is known as fractional ownership. Let’s understand this better with the following example-

There is a Grade-A pre-leased commercial property in Delhi worth Rs. 50 Cr. Now, an investment of 50 Cr. is only possible by a high net worth individual. A regular investor offering Rs. 10 Cr. or below can’t own the property. But what if a group of 5 regular investors let's name them- A, B, C, D, and E invests Rs. 10 Cr each in the same property. They become the fractional owners of the property.

These commercial properties are owned under the name of SPV (Specific Purpose Vehicle) which is formed by the asset management firms. The funds pooled by the investors to own this property are rooted in the SPV. To be precise, the SPV owns this property and the investors will own shares of the SPV holding the property, proportionate to his/her contribution to the property.

SPVs are created solely to hold property on behalf of customers. For customers, the AMF(i.e. Asset Management Firm) manages the SPV and the underlying property. Basically, a Asset Management Firm pools the funds of multiple investors in an asset (be it stocks, bonds, or real estate) which has growth potential. The Asset Management Firm forms an SPV and through an SPV, the ownership is transferred to fractional owners.

How does this work?

The fractional ownership investment in India is dedicated to 'pre-leased commercial properties.' That means the property is income-generating. If the group of 5 investors (as mentioned above) are the owners of the property, then the income generated on the property also belongs to them. Again, let's get this cleared better!

If investors-

A, B, C, D, and E have invested Rs. 10 Cr each to sum it up to Rs. 50 Cr that is the total property cost,

The rental income they will receive, out of the net rental income generated by this commercial pre-leased property, is proportionate to the investment done on the property.

For example, the net rental income generated by the property is Rs. 50,000

Then investor-

A- will receive Rs. 10,000

B- will receive Rs. 10, 000

C- will receive Rs. 10,000

D- will receive Rs. 10,000

E- will receive Rs. 10, 000

Why is fractional ownership gaining momentum?

The commercial real estate sector is known for its passive income-generating capabilities. We can see that there are many investors eager to make pre-leased commercial real estate investments. This is because they provide monthly income and a great capital appreciation. Additionally, the low maintenance costs, as well as long lease tenures, add to the advantages.

Now, when we talk about commercial properties, it is obvious that these properties are unaffordable to regular investors. But fractional ownership has given regular investors a chance to invest in these pre-leased properties by investing budget-friendly amounts and being an owner plus earning a regular income out of it.

What are the pros of a fractional ownership?

Fractional ownership comes with a lot of advantages. Let's look at them-

1) Low ticket size investments-

Gone are the days when owning a commercial property investment needed colossal capital. Fractional ownership allows you to invest just a small part of the total property cost, and seek ownership of it! However, the amount you invest depends upon the total cost of the property and the number of owners the property has.

2) Maintenance and upkeep are done by the asset management-

As mentioned earlier, these commercial properties are owned by asset management firms, and these firms are responsible to take care of property maintenance and upkeep. Additionally, pre-leased commercial properties are basically low-maintenance or no-maintenance properties because the tenants generally keep the properties clean to maintain their brand image and attract customers, new employees, business partners, etc.

3) Regular returns -

These are pre-leased commercial properties and generate regular rental income from quality tenants. You own the fraction of the property, of which a part of rental income belongs to you. So, this way you get a regular monthly income, on your investment which acts as a passive income.

4) No need for immediate payments-

These properties don't demand payment upfront. Just an EOI (Expression Of Interest) at the start and the balance can be done in a span of 1.5 to 3 months.

5) You can even get a tax benefit on these properties-

But when it comes to fractional ownership, you can buy this property in the name of an acquaintance who doesn't fall under the tax slab, and thus no TDS may be deducted on the rental received, and get the full leverage of the property.

One should fill the form 16-H which is a declaration stating that one doesn't fall in the tax bracket, thus TDS may not be deducted

A few downsides to consider-

1) Registry not under owner’s name-

The property is held by the SPV and hence, it doesn’t get registered under the investor’s name. Yet, you will get all the documents that are needed to claim your fractional ownership on the property.

2) No dedicated unit allotted-

In the fractional investment, there is no dedicated unit allotted to a single fractional owner. The entire property is owned by multiple owners, which can raise conflict in the future. Also, if the AMF goes out of business, the SPV won’t have any mediator, thus raising a question about the ownership of the property.

3) Dependency on other investors -

Due to the multiple owners handling a single property, you are dependent on them for the sale of the entire property, leasing or taking up expenses of the property, if the AMF goes out of business which is rare.

Is the investor’s interest protected by the law?

As fractional property ownership is a new concept in India, there are not many laws introduced by the government. But, the Pvt/ trusteeship/ LLP within which the SPV operates falls under the ROC(Registrar of the company). What is a registrar of the company? The registrar of the company or ROC has the registrary of records of all the LLP firms in India. It completes the regulation and reporting of the shareholders and directors of the company.

The real estate sector is open to all types of investors, and so is our platform. Hence, we have a lot of investment opportunities, including fractional ownership. Get investment ready with us, and amp up your financial wealth within seconds!