The real estate sector has been rapidly expanding in key markets due to increased demand and strong sales. Investors are now actively seeking ways to invest in this growth. Over time, regulations have made the real estate sector more mature and attractive to investors. Fractional Ownership is an investment concept that has democratized the sector by allowing retail investors to invest in high-value properties. This investment method generates fixed returns from rent-generating assets. While alternate investment options like AIF and REITs are becoming popular in India as lucrative and effective investment vehicles, these are more focused on institutional and high-net-worth investors. On the other hand, investment models like Fractional Ownership are targeted toward retail investors who can get access to the high-value commercial segment through this model.
The good news is that this kind of model is not only creating more avenues for retail investors but also opportunities for developers to explore varied funding sources. Fractional Ownership has become more popular among investors in recent times, especially after SEBI proposed various Fractional Ownership Platforms (FOPs) to register with SEBI MSM REITs and comply with specific registration processes. According to a leading real estate firm, MSM REITs should include separate and distinct entities acting as a trustee, sponsors, and investment managers. SEBI also suggests that MSM REITs should be set up as a Trust under the Indian Trusts Act, with the ability to establish separate schemes for owning real estate assets. This will be done through SPVs (Special Purpose Vehicles) constituted as a company under the Companies Act 2013. The MSM REIT Scheme will have full control and hold 100% equity share capital in all SPVs.
The introduction of regulatory steps has proven to be advantageous for investors. With Fractional Ownership, they can now enjoy benefits such as fair pricing, transparent transactions, and the flexibility to exit or liquidate their investment at any given time. The digitization and tech enablement of the real estate industry also make it convenient for investors to make data-driven decisions through web-based FOPs. This offers a lot of visibility that was not present before the proper regulations in the real estate investment space were enforced.
Investors have been redirecting towards Fractional Ownership due to diversification, especially after the pandemic when the stocks and commodities market has become volatile. The uncertainties arising out of the global economic headwinds also called for avenues and markets that look more promising. In contrast to this, India's real estate market continued to show promise with the commercial segment breaching record-high numbers in terms of leasing and demand. According to a report by Mordor Intelligence, the India Commercial Real Estate Market size, currently estimated at USD 33.62 billion, is projected to grow at a CAGR of 21.1% during the forecast period and reach USD 87.57 billion by 2028.
As India's ease of doing business index ranking continues to improve in the coming years, it is expected that more global enterprises will set up their bases here. The global occupiers across industries such as IT, manufacturing, BFSI, startups, and the booming service industry will need quality spaces to accommodate their employees. This will create more Global Occupier Centers (GCCs) operating from the key cities of India, thus accentuating and accelerating the demand for Grade-A office assets. In this scenario, Fractional Ownership will be a win-win proposition for developers and investors. As the sector continues to grow, Fractional Ownership will keep unlocking newer opportunities for investors in the years to come.
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