Real estate business is booming at an excellent rate across the globe. The more prominent players in it are not the first world nations, but the developing countries like India. With the availability of tons of occupied and barren land, which are being pushed into the real estate market, the industry now enjoys a considerable share in the making of the overall business environment. States like Haryana have taken great leaps because of voluminous investment in this sector. It is also expected that the real estate industry will contribute 13 per cent to the country's GDP by 2025. However, the business is still far from being democratized, in a sense that only big corporates and wealthy businessmen are the key players in this market. Nonetheless, with the advent of fractional ownership, the investment gates are being opened wide.
Now, even if your budget is tenfold less than the price of the property in interest, thanks to the fractional ownership method, you can easily invest in that. Although still in a nascent stage, this contemporary mode of ownership will play a leading role in the imminent future. Hence, let us understand those five key reasons why fractional ownership of real estate is going to be the next big thing in India.
Primary Reasons That Will Make Fractional Ownership Of Real Estate The Next Big Things
Augmenting Real Estate Market
Private Equity and Venture Capital investments have crossed US$ 1.47 billion between Jan-Mar 2019 in the real estate sector. The data is highly indicative of the future of the real estate business. Owing to the fact that this market has a high potential of investment coming from overseas, the government has also kept a 100 per cent FDI inflow for townships and settlement development projects. All these facts will build the confidence of potential investors, who will get the opportunity by fractional ownership, to invest in this field.
Share Of Liability
Apart from the liability to invest a chunk at once, the burden of bearing liability is another con that refrains people from investing in the real estate sector. However, this will not be the case with fractional ownership, which divides the investment required as well as the total liability. For example, if ten people have invested in a property of 1 crore (10 lakh each), then the total liability will also fall ten times for each investor. This perk of fractional ownership will expand the investor base by allowing the ones who until now have been fearing the extent of liability they will have to carry post making investment.
Capital Appreciation
One of the major pros of real estate business, particularly with the residential segment, is that it brings you high chances of appreciation. This is likely to lure hungry investors seeking higher returns. Take the example of share market, in which, even the lower income group can invest because of the fact that even if there is a loss, it will not affect much (if the number of shares purchased is in the limit). With fractional ownership of real estate in India, the investors in share market from the low-income group will gradually shift to the investment in residential plots. Along with a probable capital appreciation of around 10-20% after a certain period, the investor can also enjoy rental income from the property.
Adoption Rate
The fact that fractional ownership in real estate is yet to be the big story in India is not stopping the online property sellers from anything. Dealers such as hBits and a few more startups are offering this mode of securing ownership of a real estate property. Some of them have even successfully secured a few deals. The main reason behind this fast adoption is the confidence that fractional ownership will enlarge the real estate market by a substantial degree.
Unique Usage Rights
Fractional ownership has some interesting usage rights. For the time being, there are two primary usage approaches for a fractionally owner property. The first one is the “Pay-to-use Approach”, in which, co-owners pay a pre-agreed “usage fee” for each day or week of usage. The usage fee is added to the rental income generated from non-owners. If the total revenue exceeds the expenses, the surplus is divided among the owners. Then there is “Usage Assignment Approach”, where each owner is assigned the exclusive property usage rights for a specified period, which can either be fixed or variable. This type of flexibility in usage will undoubtedly garner attention. Take the case of a holiday resort, which you want to own but cannot afford because of its aberrant price. Hence, you decided to buy real estate in fractional ownership so that you can enjoy your share of time (who lives in a resort for the whole year) without paying its full price.
Conclusion
Fractional ownership allows an investment of as low as 5 lakh in the real estate sector, which is quite unheard of. With the division of investment and liability, bringing the benefits of high capital appreciation probability to the new investors and exclusive usage rights, fractional ownership has the potential to take the growth of real estate market to the highest peak in India.
