Fractional ownership in real estate is quickly catching on in India, giving people a new innovative way to invest in expensive properties. This new model lets individuals buy a share of commercial properties, so they can earn potential profits without worrying about managing the property.

 As Indian cities expand and the need for top-quality commercial spaces grows, fractional ownership is becoming a great option for those looking to diversify their investments and   earn passive income.

By 2028, the fractional ownership market in India is expected to grow significantly. Factors like rapid urbanization, a growing middle class, and the need for clear, regulated investment options are driving this trend. This article will dive into the changing demographics shaping the market, explore opportunities in different areas of real estate, and look at the risks and how to manage them. We'll also see how global best practices can be adapted to fit India's market. For investors interested in fractional ownership, understanding these points is key to making informed decisions in India's evolving real estate scene.

Demographic Shifts Driving Fractional Real Estate Investments

Millennial Investors and Their Preferences

Real estate investment in India is changing, thanks to the growing influence of millennial investors. A report from Grip Invest shows that millennials, born between 1981 and 1996, make up about 60% of all investors in fractional investments. This generation is turning to fractional ownership as a way to diversify their investments and take control of their financial decisions. Unlike previous generations, millennials prefer to be more involved and hands-on with their investments, and fractional investing is giving them that opportunity.

Impact of Urbanization on Investment Patterns

India's fast-paced urbanization has deeply influenced how people invest in real estate. The opening up of commercial real estate (CRE) to more investors has created exciting new opportunities, offering rental returns that are 3-4 times higher than those from residential properties, fixed deposits, or debt instruments. This shift has made it easier for a wider range of people to invest in high-value, income-generating properties.

Fractional ownership platforms have been key to making this happen. By letting people invest in parts of commercial properties, these platforms have reduced the amount of money needed to get into the real estate market. This has drawn in young investors, some as young as 21, who are now choosing to put their money into these high-yield investments, creating new paths for financial growth and independence.

Role of Technology in Attracting Younger Investors

Technology has played a big role in drawing younger investors to fractional real estate ownership. Blockchain, in particular, has transformed how people can own parts of real estate, making the process easier and more transparent. By tokenizing real estate assets, it has created a more liquid market, allowing investors to buy, sell, or trade their shares on digital platforms with ease.

This innovation solves one of the biggest challenges in real estate investment—illiquidity. Now, investors have the flexibility to manage their investments more freely, which perfectly fits the preferences of younger investors who prioritize liquidity and adaptability in their strategies.

Sectoral Analysis of Fractional Ownership Opportunities

Commercial Real Estate Prospects

The commercial real estate (CRE) sector in India offers exciting opportunities through fractional ownership. This new approach has made it possible for more people to invest in high-value, income- generating properties that used to be limited to the wealthy and big institutions. Fractional ownership platforms have lowered the capital needed to get into CRE, allowing a wider audience to participate.

One of the biggest benefits of investing in CRE through fractional ownership is the potential for higher returns, with rental yields about 3- 4 times better than residential properties. Investors can expect overall returns in the range of 11-18% IRR. Plus, with Covest handling tenant management, the whole ownership experience becomes much simpler. On top of that, investors can more easily exit their investment due to the smaller amounts required and the support Covest offers, making it more flexible than traditional CRE investments.

Residential Property Investments

While commercial real estate leads the way in fractional ownership, residential properties—especially second homes and holiday residences—are quickly catching up. This segment offers a unique mix of lifestyle and investment opportunities, appealing to the rising aspirations of India's middle-income families.

Recent studies show that the holiday home market is growing rapidly, with a projected annual growth of over 20% in the next five years. This spike in demand is largely due to the COVID-19 pandemic, as more

people seek peaceful getaways from busy city life, making holiday homes an attractive option for both relaxation and smart investment.

Hospitality and Vacation Home Segments

The vacation home fractional ownership market, although still in its nascent stage, is showing promising growth. Currently estimated at approximately USD 25 million in assets under management, it covers over 0.1 million square feet of usable area across more than 35 properties. While this segment represents less than 5% of the commercial fractional ownership market, it offers unique advantages to investors.

These properties typically witness a capital appreciation of 8-10% annually, with rental yields of 5-6% for homes that can be let out. While the rental yields are lower than those of commercial assets, they still outperform traditional residential properties. The flexibility of ownership models, with options for personal use and rental income, adds to the appeal of this segment.

Risk Assessment and Management in Fractional Ownership

Market Volatility and Economic Factors

While fractional ownership in real estate offers great opportunities for diversification, it still comes with risks, just like any other investment. Investors need to keep in mind that market volatility and economic changes can impact returns. Factors such as vacancy rates, ongoing maintenance, and shifts in the real estate market can unpredictably

affect the income and value of these properties. It’s important to be aware of these potential challenges when considering fractional ownership.

Global Best Practices and Their Application in India

Lessons from Mature Markets

Fractional ownership in real estate has become quite popular in developed countries, offering valuable lessons for India. In these mature

markets, start-ups have introduced models that make it easier for more people to invest in real estate. Platforms like Covest allow individuals to pool their money together to invest in high-return assets, like properties under development or already leased-out residential and commercial spaces. This approach has opened the door for a broader audience to benefit from real estate investments without needing large sums of capital.

Adapting International Models to Indian Context

Applying global best practices to fractional ownership in India requires careful adjustments to fit the local regulatory landscape. While Indian platforms follow similar business models as those in developed countries, they face stricter regulations and compliance challenges. The Securities and Exchange Board of India (SEBI) has taken notice of the increasing interest in fractional ownership and has created a regulatory framework to safeguard investor interests. This ensures a more secure environment for investors.

Potential for Cross-Border Investments

Fractional ownership offers exciting opportunities for cross-border investments, especially for Non-Resident Indians (NRIs) interested in the Indian real estate market. This model lets NRIs invest in real estate without needing large amounts of capital, which could lead to more foreign investment and help grow the sector.

The use of blockchain technology and smart contracts has opened up new possibilities for fractional ownership. Through tokenization, blockchain creates secure, transparent records of transactions, with digital tokens representing property shares. This not only boosts transparency but also cuts down on intermediaries, making the investment process smoother, more efficient, and cost-effective.

Conclusion

By 2028, fractional ownership is poised to reshape the Indian real estate investment landscape. This innovative model is making it easier for more people to invest in high-value properties, opening doors that were

once limited to only a few. Key factors driving this growth include rapid urbanization, a growing middle class, and the increasing demand for transparent and accessible investment options. As the market evolves, it's important to understand both the opportunities and the challenges to make smart investment choices. In the long run, fractional ownership could become a key player in shaping the future of India's real estate market.

FAQs

What can we expect from India's real estate market by 2030?

The Indian real estate sector is projected to expand significantly, reaching a market size of US$ 1 trillion by 2030, up from US$ 200 billion in 2021. This growth is expected to contribute 13% to the country's GDP by 2025.

What is the projected growth rate of India's real estate sector over the next five years?

The real estate sector in India is expected to grow at a compound annual growth rate (CAGR) of 9.2% from 2023 to 2028.

What are the potential drawbacks of fractional ownership in real estate?

Fractional ownership often comes with reduced flexibility and freedom. All decisions regarding maintenance, repairs, and decoration need consensus among all owners, which can complicate matters.

Additionally, selling a fractionally owned property may require approval from the other co-owners, depending on the terms of the agreement.

How large is the fractional ownership real estate market expected to be in India by 2030?

The fractional ownership market in India is anticipated to experience substantial growth, expected to increase more than tenfold to surpass

$5 billion by 2030.