Investing In Fractional Real Estate: How To Select The Right Property

Real estate can be a good investment and can thus be a part of one’s portfolio. However, most people can't buy property over and above the one that one uses for staying because real estate is expensive. But fractional ownership offers a way to invest in real estate with a reasonably lower investment. 

Fractional ownership is a co-ownership framework wherein the retail investor can invest in smaller fractions of the property with relatively smaller amounts. Such investments allow investors to own premium properties with relatively small amounts of investment and benefit from both capital appreciation and rental income. 

“Fractional ownership in India is currently being offered through multiple streams including REITs, SM REITs, web-based platforms, and direct ownership through developers. While some of these like web-based platforms are largely unregulated, REITs & SM REITs benefit from strict regulatory oversight,” says Vimal Nadar, senior director & head of research, Colliers India. 

Retail investors in SM REITs require a minimum investment of Rs 10 lakh per lot. For REITs, the minimum amount is Rs 10-15,000 for one lot. “Web-based fractional ownership platforms typically have a minimum investment criterion of Rs 10-25 lakh, depending upon underlying asset class, and vary across platforms,” says Nadar. 

How To Choose The Right Property 

The typical structures presently available in the market focus on commercial assets, as they offer yields of six to nine per cent. “In contrast, residential yields are two to three per cent, unless the properties are used for student housing or holiday homes, where the yields are five to six per cent. Hence, the choice depends on one's investment goals,” says Anand Moorthy, co-founder and CBO, Capital Market & Services, Square Yards. 

“Investors can review the historical performance, rental yields, and occupancy rates of the underlying assets of SM REITs/REITs/web-based platforms that they plan to invest in. They can also explore micro-market or property-specific real estate trends of both residential and commercial properties,” says Nadar. Additionally, investors should carefully examine financial statements to assess long-term profitability and stability in return on investments. Moreover, with the rising demand for ESG-compliant/ green properties, investors can potentially benefit from having green-certified assets.

“However, retail investors often lack awareness of these aspects beyond property valuation. Therefore, it is crucial to choose the right asset manager with proven experience in real estate investing, as they are likely to bring well-curated and high-quality products,” says Moorthy.