Fractional real estate is a fascinating concept that allows everyday people to invest in high-value properties without needing a massive amount of capital. Instead of buying an entire property, investors can purchase a small fraction, becoming partial owners. This approach has gained popularity in India, where real estate investments are highly favored. Here are some key points to help you understand fractional real estate better.
Imagine you come across a property worth Rs 20 crore that you’d love to invest in, but you only have Rs 20 lakhs available. With fractional real estate, you can still get a piece of the pie by becoming a 1% owner of the property.
So, how can you buy into fractional real estate? While you could gather a group of friends to pool funds and buy a property together, this isn’t always practical. Instead, there are online platforms known as Fractional Ownership Platforms (FOPs) that facilitate fractional real estate investments. These platforms handle everything from property research and purchase to documentation, legal work, rent collection, and distribution among co-owners.
Fractional real estate investments typically focus on commercial properties, which offer good appreciation and regular rental income. These properties are often high-value assets, ranging from Rs 20 crore to Rs 500 crore. Investing in such properties individually may not be feasible for retail investors, making fractional real estate an attractive option.
The minimum investment required for fractional real estate usually falls in the range of Rs 5-25 lakhs, making it accessible to many investors. On FOP websites, you can find details like the target Internal Rate of Return (IRR) and the total price of the real estate, helping you make informed decisions.
When it comes to liquidity, investments, fractional real estate presents some challenges. Unlike residential real estate, where finding a buyer is relatively straightforward, selling a share in a fractional property can be more complex. However, if the property generates good rental income and maintains high quality, finding a buyer may be easier.
Here’s how it works:
Imagine there’s a property worth Rs 20 crore where you want to invest, but you only have Rs 20 lakhs. In fractional real estate, you become a 1% owner of the property.
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How to buy Fractional Real Estate?
Technically, you could form a group of 5-10 friends, each contributing to buying the real estate, making it a fractional real estate. However, this isn’t feasible for everyone. Hence, there are online platforms known as Fractional Ownership Platforms (FOPs) that allow you to invest a small amount into real estate. Multiple investors like you invest through these platforms, making everyone a part owner.
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What kind of properties can you buy under fractional real estate?
Fractional real estate mostly deals with commercial properties, which offer good appreciation and regular rental income. These properties are often expensive, ranging from Rs 20 crore to Rs 500 crore, making it difficult for retail investors to invest individually.
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Minimum ticket size
The minimum ticket size for investment in fractional real estate is usually between Rs 5-25 lakhs, making it accessible to most people interested in real estate investment. You can find details about the target Internal Rate of Return (IRR), total price of the real estate, and other information on the websites of these Fractional Ownership platforms.
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Liquidity issues in Fractional Real Estate
Real estate, in general, is an illiquid asset class, taking time to find buyers and get the desired price. In fractional real estate, exiting means selling your share to another buyer. The liquidity depends on factors like rental cash flow and property quality.
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Less Hassle, no management
One of the advantages of fractional real estate is that investors don’t have to deal with property research, documentation, buying process, or property maintenance. Everything from collecting rent to property management is handled by the Fractional Ownership Platforms (FOPs).
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SEBI coming up with regulation on Fractional Real Estate
Many platforms have emerged in the fractional real estate market,investments, lacking standard processes and disclosures. SEBI is planning to regulate Fractional Ownership Platforms (FOPs) under REIT regulations to bring standardization to the market.
REIT vs Fractional Real Estate
While both REITs and Fractional Real Estate offer ways to invest in real estate, they differ in various aspects. REITs have been popular for many years and provide a simple way to invest in real estate, but they vary from Fractional Real Estate on different parameters.
One of the significant advantages of fractional real estate is the reduced hassle for investors. You don’t have to deal with property research, documentation, or maintenance tasks. Instead, you can focus on evaluating investment opportunities and making decisions that align with your financial goals.
Regulation in the fractional real estate market is evolving. With the emergence of numerous platforms, there’s a need for standardization and oversight. Securities and Exchange Board of India (SEBI) has initiated steps to regulate Fractional Ownership Platforms and bring them under Real Estate Investment Trust (REIT) regulations. This move aims to enhance transparency and investor protection in the sector.
Comparing fractional real estate with REITs, both offer opportunities to invest in real estate without owning entire properties. However, they differ in various aspects, including investment structure and regulatory frameworks.
In conclusion, fractional real estate presents an exciting avenue for investors to diversify their portfolios and access high-value properties with manageable investment amounts. As the sector evolves and regulations become clearer, it’s essential for investors to stay informed and make informed decisions. If you have any questions or need further clarification, feel free to ask in the comments section below.
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