Fractional Ownership In Properties
What does the title mean?
In simple words, it means being a part owner along with other co owners. It’s a concept that’s recently been trending in India.
This scheme primarily targets the aspirational class of investors across all age groups.
Read on to find out some advantages and disadvantages of the same.
Advantages:
1. Getting a stake in high end properties. Under normal circumstances, this is probably beyond the reach of most investors in this category
2. An investor can invest in multiple properties in different locations to spread the risk
3. The investor is not hassled with maintaining or managing the asset
4. Renting out the asset would also be handled by the company holding the property.
Disadvantages:
1. Ownership of the property: This process requires complicated and cumbersome paperwork, thoroughly drafted by a lawyer to safeguard the investors interest. It is lengthier and more time consuming in comparison with a self owned property as it requires more than just a regular sale deed and registration
2. Maintenance: Assuming the holding company will be maintaining the property and subsequently collecting charges from the co owners – the maintenance would surely involve additional logistical expenses which would be added on to the actual expenses resulting in extra charges impacting the ROI. In a regular society process, the actual expenses are billed directly to the members
3. Finding a buyer to step into your shoes is challenging for this asset class, especially getting an accurate value for the total property
4. Having been a part of this industry for four decades, have seen multiple properties stuck for years due to differences between family members. Here, we are associated with unknown people in most cases
5. Mortgaging your share of the property, may seem simple on the surface but may not necessarily be so
6. Acquisition cost: Any company putting in extra efforts of sourcing and managing multiple owners, would most likely, charge more than the prevalent rates in that area. However, if an investor chooses to buy an asset of this class, it’s best to secure your interest through proper paperwork, without getting carried away with the marketing material given to you.
Pro Tip: I would stay away from this category for now as the disadvantages exceed the advantages.
See you next week. Until then, please feel free to share your feedback and opinions in the comments below.