The real estate sector in India has been witnessing an impressive demand since last year after a two-year hiatus due to the pandemic-induced lockdown. Almost every segment of the sector, including residential and commercial, is witnessing good growth. Amid this, a new ownership system is gaining popularity in India – fractional property ownership or FPO. In an interview with Follow-us, 360 Realtors founder and MD Ankit Kansal spoke on various aspects of fractional ownership in real estate and its future. Edited excerpts:
Do you think Indian real estate is mature enough to embrace fractional property ownership?
Indians have always invested in real estate, believing it to be a relatively safer, tangible, and high-yield investment with limited downside risk. Fractional property ownership (FPO) will further bring a new dimension to the Indian penchant for real estate and unlock new opportunities for investors. It will enable increased investment from smaller investors in the commercial real estate space, which has been mostly managed by HNIs and institutional investment houses till now.
With the advent of fractional space in India, now even someone with a modest amount of Rs 20 lakh can invest and own a part of a high-ticket office space or other commercial assets and earn attractive rental yields and IRR (internal rate of return). Property developers will also get access to new funding streams.
As an investor, how is real estate FPO different?
It will reduce the barrier for retail investors to enter the commercial real estate segment. Buyers and investors can own part in one or multiple commercial assets. This would not only boost the ROI (return on investment) but will also greatly help in diversifying the investment and absorbing risks.
Under fractional ownership, the owner can sell a property after 51 per cent of the pooled investors are willing to do so.
Is fractional real estate only limited to office and commercial assets?
While FPO includes commercial assets such as offices, warehouses, and industrial plots, numerous other income-generating categories can also be marketed as fractional property. These include hotels, resorts, vacation villas, co-working spaces, and co-living spaces. It can be further extended to other assets such as business parks, shopping malls, and even SEZs (special economic zones).
Basically, any income-generating asset offers an option to be transacted under fractional property ownership.
How do you see the Securities and Exchange Board of India’s (Sebi) keenness to regulate the fractional ownership space?
Sebi’s recent decision to regulate the overall space is a positive step as it will help in boosting investor confidence and set up the right framework for entities to operate. Managers and sponsors operating in the space have to declare their net worth. Likewise, there will be a code of conduct mandated for managers about how to go about their proceedings.
This will not only bring in more structure and transparency but also imply discipline in the segment. The involvement of entities like Sebi further underscores how lucrative the category is with a near-exponential growth potential. Regulation and structure will also invite larger real estate players to enter the segment. In the next five years, we assume 70 per cent of the market will be run by larger players, bringing in increased discipline and faster growth in the overall segment.
What do you think will be the biggest game changer in the space, going forward?
Technology will be one of the key game changers in the FPO space in India. It will enable creating full-stack platforms, integrating both forward and backward value chains. At the forefront, it will help FPO entities to showcase multiple properties on the platform, reach out to banking and finance institutions, empanel channel partners, and create a seamless investment experience.
Meanwhile, in the background, it will help in extending the reach by exploring newer property investment options, setting up a robust due-diligence team in place, and creating a transparent database system.
Another factor that will be pivotal is the advent of predictive analytics and blockchain. Big data and data science are in their initial phases in the property market but can soon change gears. The impact will be mind-blowing for the FPO segment as it will create multi-variate practical models for the buyers to make informed bullet-proof decisions. Likewise, once blockchain will become popular, it will unearth whole new options for the tokenization of the property market.
How do you think the FPO market will evolve in India from here?
The FPO market will continue to evolve from here, which will include expansion in size as well as transformation in temperament. The space will be an interplay between property tech, fintech, and regulatory tech. While recent time has seen mushrooming of online platforms, going forward few big players will also enter the space, resulting in increased consolidation and organisations.
The emergence of big players will also help in strengthening the supply lines, enriching the ecosystem, and bringing in better talent pools. Not to forget experimentation with technology and further enhancing the product offerings.
