Fractional Ownership on Real Estate and its Implications

Is real estate becoming too expensive for you? Is buying a home beyond your budget? Would it be interesting to buy a portion of the apartment? Fractional Ownership on real estate is concept popular with commercial properties. But today is picking up steam in residential projects as well.

Salaried individuals and small business owners who don’t want to take a loan are now joining up to gain ownership of real estate. The big-ticket investments in fractional ownership are in commercial and retail spaces. The investment pool is larger, and the risks are also heavy in this form of investment. Leasing agreements are also stringent, and returns are heavily dependent on location of the commercial or retail property. This has led to a rise in interest in residential projects.

Types of Ownership

The property can be owned in various formats by individuals or Special Purpose Vehicle Firms. A few options are

  • Pay to Use – The owners themselves use the property and pay a usage fee for each day/week or month of usage. The property may also be rented to non-owners on a short-term basis
  • Usage Assignment Approach – Each owner has a specific number of days for which he can use the property. For that period the owner can use it himself or rent it out.
  • Long Term Lease – In this the owners lease out the property for a minimum of 11 months.

How is this organised?

In investment platforms, you can find properties for investing into. The platform will also put together other investors who are interested in the property. If there are less than seven investors, then they can each invest into the property as individuals. Generally, if there are more than seven investors a Special Purpose Vehicle firm is created, and all the investors become shareholders. Their fractional ownership on real estate is determined by the amount of shares they hold. The entire arrangement will be legally binding with an agreement that details your fractional ownership. Exit from this venture will also be possible by selling off the share you own. Liability is also limited to the amount of capital investment made by you. All existing tax rules will apply for purchase. The monthly rentals will be divided as per shareholding pattern.

The Money Factor

The money investment can be direct without taking a loan. Since these schemes are not eligible for home loans, if you are taking a loan it would have to be a personal loan. The rental income credited will be after deduction of taxes and maintenance charges. Long Term Capital Gains will apply if the property is sold after 3 years and as per the Income Tax slab if sold within 2 years.

The single biggest challenge which Fractional ownership will have to face in India in the real estate sector might be from Real Estate Mutual Fund (REMF). Consequently, there is no reason for fractional ownership to be unsuccessful. Therefore, it is the appropriate time to take positive steps in seizing the best opportunities available.

11 Comments on “Fractional Ownership on Real Estate and its Implications”

  1. I and also my guys were found to be reading the best points from the website while unexpectedly I got an awful feeling I never expressed respect to the web blog owner for those tips. All of the guys are actually certainly very interested to learn all of them and now have quite simply been enjoying them. Appreciation for really being quite helpful and then for choosing such superior subject areas most people are really desperate to understand about. Our own honest regret for not expressing appreciation to you earlier.

  2. I wanted to develop a quick remark to be able to say thanks to you for all of the great steps you are posting at this site. My time consuming internet investigation has at the end been recognized with excellent strategies to talk about with my colleagues. I would mention that most of us site visitors actually are really endowed to exist in a very good website with many perfect individuals with interesting points. I feel somewhat blessed to have encountered the webpage and look forward to so many more brilliant moments reading here. Thank you once again for a lot of things.

  3. I precisely wished to thank you so much again. I’m not certain the things I might have used in the absence of the type of information shared by you over my area of interest. It absolutely was a frustrating circumstance in my position, but seeing the very expert fashion you handled that forced me to jump over joy. I’m happy for the service as well as trust you know what a great job that you are carrying out training the others through your blog. I am sure you have never got to know all of us.

Leave a Reply

Your email address will not be published. Required fields are marked *