The investment model known as Fractional Ownership is specifically designed to cater to retail investors, enabling them to gain access to high-value sectors within the commercial real estate landscape.
The real estate industry has been undergoing significant growth, largely propelled by soaring demand and increasing sales across key markets. This expansion phase has attracted a multitude of investors who are looking to seize opportunities amid the bullish trend. The evolution of the sector has been influenced by important regulatory reforms, which have rekindled interest among potential investors. Fractional Ownership, in particular, has played a pivotal role in transforming the market by allowing retail investors to acquire stakes in lucrative properties, thus earning fixed returns on assets that generate rental income.
While alternative investment channels, such as Alternative Investment Funds (AIFs) and Real Estate Investment Trusts (REITs), have gained prominence in India as viable tools for investment, their primary focus remains on institutional or high-net-worth investors. Fractional Ownership, conversely, is directed towards retail investors, allowing them access to prime commercial properties. This innovative model not only opens new horizons for retail participants but also presents developers with different funding alternatives to consider.
Insights from a leading real estate consultancy reveal that India's fractional ownership market was valued at USD 5.4 billion in 2020 and is anticipated to soar to USD 8.9 billion by 2025, showcasing a remarkable compound annual growth rate (CAGR) of 10.5%. This trajectory underlines the growing appeal of fractional ownership as a genuine investment vehicle.
Interest in Fractional Ownership surged following SEBI's invitation for various Fractional Ownership Platforms (FOPs) to register under the MSM REIT guidelines, enforcing mandatory compliance concerning registration processes. According to a proposal circulated by a prominent real estate agency, MSM REITs should incorporate distinct entities acting as trustees, sponsors, and investment managers. The suggestion by SEBI is to establish MSM REITs as Trusts in alignment with the Indian Trusts Act, allowing the creation of separate investment schemes for real estate assets through Special Purpose Vehicles (SPVs) formed as companies in accordance with the Companies Act of 2013. Moreover, the MSM REIT Scheme would maintain complete ownership and full equity in these SPVs.
These regulatory advancements are advantageous for investors, who can now enjoy fair pricing, transparent dealings, and the flexibility to exit or liquidate their investments at will.
Additionally, the digitization and technological progress within the real estate sphere enable investors to effectively keep tabs on their investments using web-based FOPs, facilitating informed decision-making. This evolution presents transparency that was previously unattainable before the establishment of clear real estate investment pathways.
The pandemic has spurred a shift towards diversification among investors, particularly as stock and commodity markets have exhibited significant volatility. The unpredictable nature of the global economy has prompted a search for more stable and lucrative investment avenues. In contrast, India’s commercial real estate market continues to thrive, setting new records in leasing and demand. Projections indicate that the Indian Commercial Real Estate Market could experience a CAGR of 21.1% from today until 2028, escalating from USD 33.62 billion to USD 87.57 billion.
As India's business environment improves, we can anticipate an influx of global corporations establishing headquarters within the country. Industries such as IT, manufacturing, BFSI, startups, and the burgeoning service sector will necessitate high-caliber workspaces for their personnel. This will catalyze the establishment of more Global Occupier Centers (GCCs) in India's prominent urban regions, further augmenting the need for top-tier office spaces. In this evolving scenario, the benefits of fractional ownership will extend to both developers and investors alike. As the sector continues to expand, fractional ownership is poised to unveil additional investment opportunities in the years ahead.