Exploring India’s Booming Fractional Ownership Market: Opportunities and Projections
‘Buoyant Real Estate Market in India boosts investor appetite’ Economic Times ‘Real estate sector may touch market size of $1.3 trillion by 2034’ Business Standard Unless you’re living under a rock – the massive opportunity that real estate in India presents can hardy go unnoticed! The Indian real estate market is booming, and there’s solid data to back it! According to a report by realtors’ body CREDAI- The real estate sector is estimated to reach a market size of $1.3 trillion by 2034 and $5.17 trillion by 2047. And everyone wants to be a part of it! Millennials are itching for more flexible options, while seasoned investors are eyeing ways to diversify beyond traditional norms. Throw in some regulatory tweaks that are warming up to these newfangled setups, and you’ve got a perfect storm of opportunity brewing. Over the years the real estate sector has become more mature due to the introduction of regulations, and this began to garner positive interest from investors. What truly democratized the sector is the introduction of investment concepts like Fractional Ownership which allows individual or retail investors to invest in high-value properties and earn fixed returns from rent-generating assets. Fractional Ownership, which is targeted towards retail investors who can get access to the high-value commercial segment through this model, is not only creating more avenues for them but also opportunities for developers to explore varied funding sources. Fractional ownership is a concept where multiple investors collectively own a share or fraction of a high-value asset, such as real estate, without having to buy the entire property. And the long-term projections are only catapulting into a huge opportunity for investors. The fractional ownership market in India is projected to grow over 10 times and exceed$5 billion by 2030, according to a report by JLL. Mumbai, Delhi NCR and Bengaluru are the country’s top three markets for investors seeking investment opportunities in Small and Medium REITs, according to a report. Small and Medium Real Estate Investment Trusts (SM REITs) are established in pursuit of fractional ownership in the real estate sector for small and medium investors. The top seven micro-markets of India include Mumbai, Delhi NCR, Bengaluru, Chennai, Hyderabad, Kolkata and Pune. Bengaluru and Hyderabad follow with 15% and 11% shares, respectively, the report stated. In Bengaluru, the biggest corridors are the ORR Southeast stretch and Whitefield in terms of physical asset availabilities. Quality opportunities also exist within the off-CBD corridor stretching from Koramangala to peripheries along the Bannerghatta Road and Mysore Road, where a host of small to mid-sized commercial office projects are available for potential investments under SM-REITs. There are multiple factors driving the growing popularity of fractional ownership in India. First, is the surging demand for world-class real estate projects, especially in urban areas which are made accessible to individual investors who may have been priced out otherwise. Second, India’s real estate market is characterized by significant variations in property prices, and fractional ownership provides a way to mitigate the high costs associated with prime properties. Additionally, regulatory support from bodies like the Securities and Exchange Board of India (SEBI) for Real Estate Investment Trusts (REITs) creates a conducive environment for fractional ownership to flourish. Ever since SEBI has cleared the fractional ownership framework for realty assets, there has been excitement among stakeholders regarding Fractional Real Estate Investing as it carries home the message that the “next big” investment basket in real estate has arrived. SEBI has played a crucial role in facilitating the growth of the fractional ownership market by introducing regulations for SM-REITs. These regulations provide a framework that ensures transparency, accountability, and protection for investors. As per the KPMG Report title ‘The New Frontier in Real Estate Investment: Unlocking the Potential through Fractional Ownership’ the rise of SM REITs is expected to create a ripple effect across the real estate industry, by offering developers an efficient exit strategy and enabling reinvestment of capital into new ventures, fostering sustained growth in the sector, which is one of the largest employers in the country. “Through the SM-REIT regulations, SEBI has effectively introduced an entirely new asset class to the retail and institutional investor universe. SM-REITs provide a tremendous opportunity to monetize income-generating assets,” say Real Estate experts. These regulatory steps proved to be advantageous to the investors as now through Fractional Ownership they can leverage benefits like fair pricing, transparent transactions and the flexibility & opportunity to exit or liquidity their investment at any given point in time. With the digitization and tech enablement of the real estate industry, investors can also reap the benefits of easy tracking through web-based FOPs, thus making it convenient for them to make data-driven decisions. It also offers a lot of visibility which was earlier not present when the proper regulations in the real estate investment space were not in force. Investment Opportunities and Trends Urban Centers and Beyond: Major metropolitan areas like Mumbai, Delhi, and Bengaluru remain hotbeds for fractional ownership opportunities, driven by their robust real estate markets and demand for premium properties. However, emerging tier-II cities are also witnessing interest as developers and investors seek new growth frontiers Commercial and Residential Segments: While residential properties have historically dominated fractional ownership models, there is a growing trend towards commercial real estate. Offices, retail spaces, and even industrial properties are becoming attractive options for fractional investment, catering to diverse investor preferences and risk appetites Sector-Specific Investments: Certain sectors within real estate, such as hospitality and healthcare, are also exploring fractional ownership structures. This trend is fueled by the specialized nature of these properties and the potential for revenue generation beyond traditional lease agreements Looking ahead, the future of fractional real estate in India appears bright: Market Expansion: The market is expected to grow as more developers and investors embrace fractional ownership as a viable investment avenue Innovation in Financing: New financing models tailored to fractional ownership, such as crowdfunding and peer-to-peer lending platforms, are likely to emerge Global Integration: