6 Steps to Building Wealth Through Real Estate Fractional Ownership in India

Unlocking the potential of high-value real estate is now within reach for many investors, thanks to fractional ownership. Here's a step-by-step guide to help you navigate and maximize this innovative investment model in India.

Step 1: Understand Fractional Ownership

Fractional ownership allows multiple investors to co-own a high-value property. This structure lowers the entry barrier, enabling smaller investors to benefit from rental income and capital appreciation. Rakesh Thakur, regional director and head of research at an independent real estate firm, emphasized that this model makes premium real estate accessible to a broader range of investors.

Step 2: Recognize the Advantages

Lower Investment Threshold: Akash Mehta, managing director of a leading real estate development company, noted that fractional ownership requires significantly less capital than purchasing an entire property. This makes it possible for retail investors to own a share of high-value commercial real estate.

Diversify Your Portfolio: By investing in multiple properties, you can spread risk and enhance potential returns.

Access Exclusive Properties: Fractional ownership opens doors to high-end properties that were previously dominated by high net-worth individuals.

Steady Income Stream: Co-owning income-generating assets like commercial offices and retail spaces ensures a consistent flow of rental income.

Step 3: Focus on Commercial Real Estate

With new regulations from the Securities and Exchange Board of India (SEBI) for small and medium Real Estate Investment Trusts (REITs), investing in commercial real estate through fractional ownership has become safer. Thakur pointed out that, in a volatile stock market and with low fixed deposit interest rates, fractional ownership offers a stable investment alternative.

This model has seen success in Europe and the US, particularly with high-end vacation homes. In India, cities like Mumbai, Delhi, and Bengaluru are experiencing a rise in fractional ownership. Sandeep Sharma, chairman and managing director of a real estate enterprise, explained that this model includes commercial spaces such as office buildings and retail outlets.

Step 4: Invest Safely

Assess Potential Returns: Evaluate properties or REITs by analyzing potential returns, conducting due diligence on financial performance, and assessing market demand.

Collaborate with Experts: Work with asset managers or real estate firms to navigate legal issues, negotiate terms, and facilitate the purchase. Sharma emphasized the importance of selecting certified and reputable platforms for REIT investments.

Review Legal Documents: Thakur advised thoroughly examining all paperwork and obtaining professional legal advice to secure your investment.

Understand Your Role: Know your decision-making power and share in maintenance costs. Develop a clear exit strategy to manage your investment effectively.

Step 5: Mitigate Risks

Handle Disagreements: Shared ownership can lead to conflicts. Establish clear communication and protocols to manage disagreements.

Prepare for Unexpected Costs: Be ready for unforeseen expenses such as maintenance and repairs.

Simplify the Sale Process: Selling or transferring ownership in fractional properties can be complex. Coordinate with other co-owners to streamline the process.

Be Aware of Legal Responsibilities: Understand any legal liabilities and ensure you have appropriate coverage.

Step 6: Make Informed Decisions

Thakur concluded that, with proper measures, fractional ownership can be a valuable investment for individuals across different income levels. He emphasized the importance of caution, understanding the risks, and making informed decisions to optimize the benefits of this innovative investment model.