64% of affluent investors lean towards fractional ownership eyeing commercial real estate

Fractional ownership dominates: As much as 64 per cent of High Networth Individuals (HNIs) are inclined towards the fractional ownership investment model in commercial real estate (CRE). Not just this, 60 per cent of overall investors also favour a fraction ownership model for CRE investment.

This preference reflects a growing trend in the Indian market, where affluent investors are increasingly drawn to alternative investment avenues, according to a recent survey conducted by WiseX's Neo-Realty encompassing 6578 respondents.

Power of collective investment

The rise of fractional ownership as a prominent investment avenue has been notable over the past few years, with CRE emerging as a lucrative asset class offering passive rental income and long-term capital appreciation. Another report by Knight Frank also highlights this trend, indicating a 65 per cent growth in the market size of fractional ownership properties in India since 2020, projected to reach $8.9 billion by 2025.

Fractional ownership in commercial real estate allows multiple investors to collectively own a portion of a property, facilitating investment in high-value properties without the need for sole ownership. This model, structured through legal entities like LLCs or REITs, offers benefits such as lower entry costs, diversified portfolios, and reduced management responsibilities, albeit accompanied by challenges in decision-making and property management coordination. Overall, fractional ownership provides a flexible and accessible avenue for individuals to invest in commercial real estate.

Recent regulatory amendments, particularly the inclusion of SM REITs, have further boosted confidence in fractional ownership investments. The survey reveals that 60 per cent of investors who hadn't previously considered fractional ownership are now influenced by SEBI's regulatory support.

Where are HNIs investing?

Bengaluru leads as the preferred location for HNI investors (31 per cent), followed by Pune (24 per cent), Mumbai (22 per cent), and Delhi NCR (13 per cent) for fractional ownership investments. Equities remained the most rewarding investment for 61 per cent of investors in the last financial year, followed closely by innovative options like REITs and fractional ownership (45 per cent).

Moreover, 69 per cent of HNIs are planning to escalate their real estate investments, showcasing a positive sentiment towards the sector's growth. The survey attributes the attractiveness of fractional ownership investments through tech platforms to their reliable track record of timely payments.

Despite the growing interest in fractional ownership, liquidity concerns remain a significant apprehension for some investors, with approximately 30 per cent expressing reservations. The majority of investors favour a medium-term perspective of 1-3 years (20 per cent) and 4-6 years (55 per cent) for their real estate investments.