How fractional ownership Is changing real estate

For many years, investing in high-value real estate was something only large institutions or wealthy individuals could afford. The main challenges included:

• Large upfront capital requirements

• Complex property management

• Difficulty in liquidating investments

As a result, everyday investors were largely excluded from this market.

Enter Fractional Ownership Platforms (FOPs)

In recent years, Fractional Ownership Platforms (FOPs) have introduced a new investment model, allowing individuals to own a portion of real estate assets rather than buying the entire property. This shift has made real estate investment more accessible, flexible, and diversified.

What is fractional ownership?

Fractional ownership means that multiple individuals share ownership of a property, each holding a “fraction” based on their investment. Initially popular in luxury vacation homes, this model has now expanded to:

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• Residential buildings

• Office spaces

• Warehouses

• Farmland

Why are FOPs gaining popularity?

Several factors are driving the growth of fractional ownership:

• Lower investment barriers: Invest small amounts in high-value assets

• Diversification: Spread investments across multiple properties

• Income potential: Earn from rental income and capital appreciation

• Improved liquidity: Some platforms offer resale options via a secondary market

• Technology support: AI and blockchain enhance security, transparency and efficiency

How does the investment model work?

Most FOPs use a Special Purpose Vehicle (SPV) for each property. An SPV is a legal entity (e.g., a limited company) that holds the asset and separates financial risks.

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Typical process:

The platform forms an SPV for a selected property

• Investors contribute funds and receive shares or instruments like debentures

• The SPV purchases and manages the property (rental agreements, improvements, etc.)

• Rental income is distributed among investors

• Profits from a future sale are shared according to ownership

• Lock-in periods may apply, though some platforms offer early exit options

What should investors be aware of?

While the model offers several benefits, it’s essential to consider legal and financial factors:

• Ownership rights: Understand your rights—voting, profit sharing, etc.

• Regulations: In India, platforms must comply with the Companies Act, SEBI guidelines, and RERA

• Liquidity: Not all platforms offer an easy exit or secondary market

• Legal documents: Agreements like the Partnership Deed and Subscription Agreement should be reviewed carefully

• Taxation: Income and gains may be taxable—know the applicable rules

Global perspective

Fractional ownership is expanding worldwide:

• US and Europe: Blockchain enhances ownership tracking and resale

• Dubai: Attracting international investors through real estate tech

• Southeast Asia: Increasing access to housing and investment opportunities

What’s next?

Fractional Ownership Platforms are redefining real estate investment. They offer access to high-value assets through shared ownership, making property investment more inclusive. However, these opportunities still involve regulatory, legal and financial complexities.

Investors should:

• Conduct thorough due diligence

• Understand the terms and risks

• Consult legal or financial advisors when needed

Anjali Jain is Partner and Drishti Suji is Associate at Areness Law. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.