What the Future Holds for Fractional Real Estate?

The vast majority of the X generation, born between 1965 and 1980, came from middle-class families that struggled financially. They began by taking care of their family’s duties, setting money aside for their kids’ education, and eventually buying a house so the kids could live without paying rent. However, this restricted them to only residential markets, which made it easier for them to buy a house.

The 1980–1996 generation, known as millennials, who worked hard in school and owned their own homes, are starting to think about investing in real estate as they approach or cross the age of thirty. On the other hand, they have to make large down payments and pay expensive EMIs. They also have to pay other taxes and property maintenance to round out their expenses when they own a home. In reality, the high cost of the commercial property made it challenging for millennials to invest in it, despite their long-standing desire.

What if they could lease a portion of their ideal house to a respectable MNC tenant, generating a reliable source of income?

The ownership structure of the commercial real estate (CRE) market has changed radically over time. The traditional CRE market has been rebranded as fractional ownership, which has become a popular form of investing for millennials, holding a portion of a highly valued stock.

The Future of Indian Real Estate: Fractional Ownership

While most of us doubt fractional ownership’s viability in India, some industry professionals believe it will be the future in five years.

As technology keeps leveling the playing field in many industries and venues, the CRE sector is starting up to fractional owners. By fractional ownership, people with limited experience and financial resources can now own a piece of commercial real estate that generates income. They can simplify the CRE investment process, improve their chances of success, and diversify their holdings by working with tech-enabled platforms. Large office building employees will soon be the owners of their structures. 

Increasing everyone’s access to real estate

Commercial real estate has historically been very profitable. But because of the associated costs, middle-class investors rarely have access to such high-yielding assets. Alongside this, investors who own stock in a company can make high-end investments.

Consistent growth and guaranteed asset appreciation in Fractional Real Estate

Commercial real estate is among the few asset classes that regained quickly after the epidemic. CRE and office leasing increased during the epidemic in India, whereas other real estate took a backseat. Additionally, the presence of MNCs in India has increased the demand for commercial real estate. It makes  CRE a smart investment with value-enhancing appreciation and ongoing growth.

Long-term lease 

Unlike residential leases, commercial leases are for an extended period. Tenants from multinational corporations (MNCs) or information technology (IT) companies frequently renew their leases and never default on payments. It guarantees you a consistent flow of passive income. 

Reasonable IRRs

Fractional ownership ensures returns and rising return rates on the capital appreciation and rental income. If they invest in a solid company through a reputable platform, investors can anticipate a 15% increase in rental returns.

Zero hassle

A fractional investment for investors is a cheap real estate investment that doesn’t need any maintenance from the owners. By conducting thorough due diligence on the CRE and only presenting Grade-A investment proposals, many real estate investment platforms further streamline the investing process. Additionally, they follow strict customer-first principles and transparency standards.

Which Is Better: Real Estate Investment Trusts (REITs) vs Fractional Real Estate?

Risk and investment go together. There is no way to guarantee that your investment will have no risks over time and will fill your pockets with a large sum of money. However, you can always research the market, consider the most recent trends, and seek professional guidance on how the real estate industry may develop in the years to come. Commercial real estate is currently in great demand due to its rising market value. However, CRE has drawbacks, such as the enormous capital requirement that small-scale investors cannot afford. The only people who could benefit from CREs were High Net Worth Individuals (HNI).

But with the advent of ideas like fractional ownership and REIT, the average person can now buy a piece of CRE and benefit financially from monthly rental income or the interest earned on the security deposit amount. But how do fractional ownership and REIT compare? 

Real estate investment trusts, or REITs, are similar to mutual funds. REITs pool funds to invest in profitable real estate on your behalf, much like mutual funds do when they invest in government bonds, direct equity, stocks, etc. The part-owner receives their capital share by leasing such properties to commercial organizations. However, REITs restrict your ability to choose the type of property you want to invest in.

In the case of fractional ownership, you have a choice regarding fractional real estate investing. The CRE property is first listed on fractional ownership platforms for interested parties to view. Following that, the fractional real estate investment or minimum ticket size is chosen based on the market value of each property. You can also select how many portions you wish to have based on the ticket price. Consider the following scenario: There are ten tickets available. If you buy 2 of them, you now have 20% of the property and receive a portion of the proceeds.

Conclusion

Simply put, fractional ownership is a form of ownership in which investors pool their small financial contributions to each owning a portion of a valuable asset. Achieving superior long-term returns is the shared goal. 

While real estate holding structures of this type are nothing new, new systems are using technology to diversify their investor base, streamline the acquisition and management processes, and set themselves apart from the competition. Real estate investing has become more accessible and liquid, creating new investment opportunities.

By 2030, there will be a $5 billion market opportunity for fractional ownership, and as investors become more aware of it and its developing ecosystem, more companies will accept it. Real estate developers should consider including fractional ownership products in their portfolios to stay updated.