Have a crore to invest in real estate? Should you consider a fractional ownership asset?

Fractional ownership enables retail investors to access high-value real estate with lower capital requirements, diversify portfolios, and earn passive income

Owning a luxury holiday home requires a substantial investment and ongoing maintenance. Co-ownership is emerging as a smarter alternative, letting multiple investors share the costs and benefits while enjoying the perks of ownership without the usual hassles. Today, several platforms offer fractional ownership of premium second homes in sought-after destinations such as Goa, Alibaug, Nilgiri, Kasauli, and Wayanad.

A fractional ownership platform enables the second home cost to be divided among several investors, who own shares or securities issued by a special purpose vehicle (SPV) set up by the platform. (Photo for representational purposes only)(Pexels)

In the holiday/second home model, each property is divided into a fixed number of units. Investors receive usage rights based on the number of units they hold, typically for a set number of days each year. Since the property is meant for personal use rather than leasing, investors do not earn rental income or dividends. Their returns come primarily from the property’s long-term capital appreciation.

In the rental housing model, the property is leased out, and the rental income is distributed among unit holders. Investors earn in two ways: regular payouts from rentals and eventual capital appreciation. However, access to personal use is limited or defined entirely by the asset manager to ensure rental continuity and upkeep.

A fractional ownership platform enables the property cost to be divided among several investors, who own shares or securities issued by a special purpose vehicle (SPV) set up by the platform. Each real estate asset is purchased through a separate SPV, so, for example, if a company acquires 20 properties across five locations, there will be five distinct SPVs.

For instance, a villa in Goa valued at ₹8 crore can be split among eight owners, with each contributing ₹1 crore. Each owner receives a one-eighth share of the property and one-eighth of the annual usage time. Stamp duty and registration charges are typically included in the cost. Co-owners also share expenses for regular maintenance and future renovations. Investors can diversify by holding shares in multiple properties, such as one in Goa and another in Kasauli.

For investors, the appeal lies in owning a fraction of a premium holiday home at a far lower entry cost, often one-sixth or one-eighth of the full value. Since second homes are typically vacant for most of the year, fractional ownership ensures the asset is utilised efficiently, while providing every co-owner with access for a few days annually. Maintenance costs and responsibilities are shared, making the model economical and practical for all involved.

The challenges

Fractional ownership enables retail investors to access high-value properties with smaller capital, diversify their portfolios, generate passive income, and maintain flexibility. However, the model is still at a nascent stage and comes with challenges, including liquidity constraints and, in some cases, potential conflicts among co-owners during exit. These factors require careful consideration, according to the KPMG in India –CREDAI report, "The New Frontier in Real Estate Investment: Unlocking the Potential Through Fractional Ownership."

Today, fractional ownership platforms offer investors a wide range of opportunities nationwide. With a focus on growth and value, they offer exit options comparable to those found in other alternative investment avenues. The rise of fractional ownership in India is closely tied to the broader expansion of the real estate sector, the report said.

As demand for commercial office spaces and residential second homes grows, more investment opportunities are likely to emerge. Still, investors must conduct thorough due diligence on both the platform and the specific opportunity before committing capital, the report added.

Note to the Reader: This article has been produced on behalf of the brand by HT Brand Studio and does not have journalistic/editorial involvement of Hindustan Times. The content is for information and awareness purposes and does not constitute any financial advice