Fractional ownership platforms: Transforimg commercial real estate

As two key wealth management trends, digitisation and diversification are making inroads into the real estate industry. Their pervasive impact on investor behaviour and expectations is evident. Though the real estate sector has been slow to adopt digitisation, the growing trust in technology infrastructure and one-touch purchase behaviour is moving the future of the industry towards a new trend – Fractional Ownership Platforms.

Table of Contents

While fractional ownership in India is at a nascent stage, it is gaining ground as a practical solution for complex investment scenarios. It is projected to reach $8.9 billion by 2025, growing at a compound annual growth rate (CAGR) of 10.5%. The ability to solve one of the biggest problems facing commercial properties – high entry barrier and capital investment – is expanding investor appetite and democratising investment opportunities in a high-potential marketplace.

Transforming Commercial Real Estate (CRE)

Traditionally, CRE investment is reserved for High-Net-Worth Individuals (HNIs) and institutional investors due to the substantial capital required to enter this market. However, fractional ownership has shattered this barrier by enabling multiple investors to collectively own high-value commercial properties.

This innovative concept has democratised the CRE market, providing accessibility to average investors, who were previously excluded. By allowing investors to pool their resources, fractional ownership reduces the financial burden on individual participants, making it an attractive option for the middle class.

For example, owning a fraction of Grade A CRE, such as a warehouse, which offers the same rent return ratio as complete ownership, adds to the perks of a fractional ownership platform.

The FOP revolution

The fractional ownership trend is fuelled by various factors, such as investors’ need for diversification and democratisation of investment opportunities, besides technological advancements. However, it is important to understand that the future of fractional ownership platforms is about transformation.

Increased accessibility

While fractional ownership is causing a panoramic transformation of real estate investments, it is paving the way for financial inclusivity. As technology and platforms evolve, online platforms simplify the investment process, making it easier for small-scale retail investors to own a portion of expensive properties.

Secondary markets

The existence of a robust secondary market plays a crucial role in shaping fractional ownership. It increases the liquidity of fractional ownership investments, which, in turn, enables investors to buy or sell their fractional shares. Simultaneously, it ensures transparency by providing price discovery and helping investors make informed decisions.

Hybrid models

The emergence of hybrid models that combine traditional real estate investment methods with fractional ownership provides investors with a blend of direct ownership and passive investment. These models offer investors exposure to a basket of assets, diversifying their holdings and adopting a hands-off approach.

Technological advancements

Emerging technologies, such as blockchain and NFT, have made inroads into real estate and enable asset tokenisation and division into fractional shares represented by digital tokens. This technology enhances transparency, security and ease of transfer, making it easier to buy, sell and trade fractional ownership shares.

Conclusion

While fractional ownership is reshaping real estate and promising limitless innovation, the industry will not be disrupted by a single technological solution, rather fractional ownership platforms will innovate to differentiate the offerings. As technology evolves, there is a need to rewrite the financial playbook and make it inclusive and forward-thinking for property investors, buyers and sellers.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at [email protected]

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Mihir Kanakia

Mihir Kanakia is the Head of Investments and Partnerships at hBits. Mihir leads efforts in identifying, securing, and cultivating relationships directly with investors and advisory communities across India and key global Indian markets.

He has over 22 years of rich experience in the fields of retail banking, real estate and prop-tech. During his career, Mihir has worked with leading financial institutions such as Citi, HDFC and HSBC, and has gained expertise in sales, distribution and product management across various offerings such as credit cards, liabilities, assets, wealth management, land, affordable and luxury residential and commercial projects in India and NRI markets. His experience has equipped him with sales, marketing, and product distribution expertise, particularly in retail banking products and residential real estate in India.