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Fractional ownership allows several investors to collectively own high-value assets such as commercial real estate, holiday homes, and luxury goods.
Fractional ownership in real estate is not only about lifestyle benefits but also offers attractive financial returns.
India has seen a steady rise in fractional ownership as a promising investment avenue for individuals seeking to diversify their portfolios. What was once largely restricted to high-net-worth individuals (HNIs) and institutional investors, particularly in the premium real estate sector, has now opened to a broader audience. Fractional ownership allows several investors to collectively own high-value assets such as commercial real estate, holiday homes, and luxury goods. This model has caught the attention of a growing middle class looking for affordable ways to invest in otherwise inaccessible markets.
Advantages of Fractional Ownership in Holiday Homes
One key area where fractional ownership is gaining traction is the holiday home sector. Purchasing a second home for leisure purposes has always been a dream for many, but the financial barrier has kept it out of reach for most. Fractional ownership makes it more affordable, as the cost of the property is divided among several co-owners. This structure significantly reduces the financial burden while allowing individuals to enjoy the benefits of owning a vacation home.
Accessibility and Cost Efficiency
The primary attraction of fractional ownership is its affordability. By pooling resources with other investors, individuals can co-own high-end properties without bearing the full cost themselves. This is especially beneficial in popular tourist destinations where property prices can be exorbitant. Co-ownership allows people to enjoy these locations without stretching their finances, making the dream of owning a holiday home more attainable. Fractional ownership of holiday properties in sought-after locations such as Goa enables people to co-own a home without the hassle of upkeep. Some platforms provide shares at entry prices as low as four to five lakh rupees, making this option more affordable for a wider range of buyers.
Investors typically have access to the property for a specific number of days per year, usually between 35 and 45 days. This arrangement aligns well with the actual usage patterns of most holiday homes, which often remain vacant for much of the year. To make better use of the property, some fractional ownership platforms offer a rental option, where the property is rented out when not in use by the co-owners. This provides an additional source of income for investors, making the investment even more financially rewarding.
Appreciating Assets and Returns
Fractional ownership is not only about lifestyle benefits but also offers attractive financial returns. Holiday homes purchased through this model typically see an annual capital appreciation of 8-10%. In cases where the property is rented out, rental yields of 5-6% per year can be expected. Although these rental yields are lower than those found in commercial properties, they still outperform the returns of traditional residential properties, which usually generate significantly lower rental income.
The ability to exit the investment easily is another advantage. Unlike many other real estate investments, fractional ownership generally does not involve long lock-in periods. Investors have the flexibility to sell their shares either to other co-owners or to new buyers, providing an easy exit strategy.
Hassle-Free Management
Managing a property can be a challenge, especially for those who do not live near the location of their holiday home. Fractional ownership platforms address this issue by partnering with professional property management companies. These companies handle the day-to-day operations of the property, ensuring that it is well-maintained, secure, and operationally smooth. This allows investors to enjoy the benefits of property ownership without the stress of managing it themselves.
Growing Interest and Regulatory Developments
The rise of fractional ownership in India coincides with a significant shift in the country’s demographic and economic landscape. The middle-income group is expanding, and with it comes an increasing aspiration to invest in high-value assets, including holiday homes. Fractional ownership presents an attractive opportunity for this segment, offering both lifestyle benefits and financial returns.
Moreover, the Securities and Exchange Board of India (SEBI) has recently introduced a regulatory framework for Small and Medium Real Estate Investment Trusts (REITs), primarily focused on commercial properties that generate rental income. This development is expected to increase transparency in the fractional ownership market, thereby boosting investor confidence. A more structured legal framework would ensure that investors feel secure in their investments and encourage further growth in the sector.
As the demand for fractional ownership continues to rise, particularly in the vacation home market, more comprehensive regulations will likely emerge under SEBI’s supervision. Such a framework would provide greater clarity and protection for investors, helping to establish fractional ownership as a mainstream investment option in India.
(The author is CEO and director of Axis Ecorp)
