Fractional Ownership

Fractional Ownership is a concept that is growing in popularity day by day and it is a concept that is attempting to flatten the entry hurdles in real estate investment and address most of the issues or limitations listed above.

Fractional Ownership of property as a concept (though not with the same name) came into being way back in the 1970s in what was called the Timeshare, but today the product has little or no bearing to the timeshare and metamorphosized into something much more powerful and path-breaking as an investment tool. Some experts even believe that Fractional Ownership is revolutionary in nature and would be the next big disruptor in real estate investment.

How does fractional ownership work?

In fractional ownership, you own a share of the real estate itself and are issued a deed for the property, not a time that you can use the home or property. Depending on the kind of property you choose to fractionally buy, you sometimes may not even get to use the property. You can fractionally own commercial space, residential apartments, land in development projects, farm land and a host of other properties.

What is a Coin or a Token in Fractional Ownership?

In quite a few cases, it may not be possible for one to own fractionally. For example commercial space or a residential apartment. In other cases the fractional ownership in itself could become a high value investment like in farm land where the minimum area that can be registered is regulated.

In such cases the company facilitating fractional ownership, come up with something called a ‘coin’ or a ‘token’. Each token is issued at a fixed issue price that is within reach to the common investor, which becomes the rupee value of the coin or token.

The Value of the ‘Coin’ increases with the increase in land or real estate price. Fractional Ownership offered in each real estate venture would have its own Coin value.

For example the value of a coin offered by a company for a farm land project could be set at Rs.10 lakhs per coin. The Land Value pegged for the coin could be 806 Sq.Yds where the market price of land is 60 lakhs per acre. Similarly the coin value for a different farm land venture offered by the same company in a different part of the city could be pegged at 484 Sq.Yds for a Rs.10 Lakh Coin, where the market price of land is one Crore per acre.

Primary Difference in Fractional Ownership through Coins or Tokens:

  • In the case of traditional fractional ownership, the land is registered in the name of the investor. In all government records the investor would be the owner of the land. However this would call for a larger investment based on the lots of land available to buy and comes with all the issues and pitfalls listed above in real estate investments.
    • Whereas in Fractional Ownership through Coins of Tokens, the ownership deed remains in the name of Company or firm issuing the Coins. The Coin in itself comes with a proper legal deed declaring the quantum of land assigned to the coin. This issue of the coin is normally a totally transparent process done through reputed auditing firms that ensures that the investors interests are totally taken care.

Advantages of Fractional Ownership through Coins:

We have noted down some pitfalls and hurdles in real estate investments. Let us look at each one of them and understand how Fractional Ownership through ‘Coins’ can address them;

  • Real Estate Investment is no longer only for the Rich: Out of the reach land prices, suddenly come within reach when all you are trying to own is a fraction of it. The Company buys the available land and divides it into smaller fractions and gives the small investor the ability to invest in smaller amounts and make a profit out of it.
  • Real Estate Investment does not take time and effort: All you need to do is look at the track record and the trust of the company that you are investing with, the rest of the time and effort needed would be put in by the company on your behalf.
  • Real Estate Investment is suddenly Liquid: With Fractional Ownership through Coins, your real estate investment suddenly becomes liquid. You can trade the coins on the Company’s website or platform as you please and whenever you wish.
  • Diversification of Real Estate Investment: What’s more, Fractional Ownership gives you the ability to diversify your real estate investments. Let us say, I have 40 lakh rupees that I wanted to invest in real estate. The price of land in a typical growth corridor to the east of the city costs 60 lakhs and the price of land in a growth corridor to the west of the city costs 80 lakhs. Now both of these are out of reach for me as a normal investor for the amount of money I have. Being a fractional investor, I can now invest in either of the projects and what’s more, if the ‘coin’ price is 10 lakhs, I can buy two coins in the west and two coins in the east and hedge my investment to the vagaries of political policies and industrial investments in the area.
  • Litigation and Risk is not your headache: A company engaging in the purchase of a large tract of land, can easily engage and have access to the best of experts and legal counsel to vet and verify the antecedents and the land-ownership history, legality, possibility of future litigation etc, in a much better fashion than most individuals. Some of the companies engaging in fractional ownership could have been started by experts in the field themselves.
  • Transparency : Some of the companies engaged in fractional ownership employ the best in technological advancement to the benefit of investor and to ensure transparency and traceability in such a way, that it is apparent to the investor, how much of land is owned by the company and the quantum of coins issued against it, the extent of trading over time and the value of trading over time, all of which is usually audited by a reputed auditing firm thereby protecting the investors interests at all times.

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