A new way to own luxury assets: The fractional ownership model; here's why it is booming in India

With the rapid rise in mobility and leisure travel post-pandemic, India’s fractional ownership market is increasingly becoming mainstream. And while fractional ownership has been a sizeable market in economies like the US, the UK, and China—all boasting of large pools of the global rich—the market in India was niche till recently. That, however, is changing fast.

In recent years, the domestic luxury market has witnessed a shift with the emergence of fractional ownership—that allows individuals to invest in expensive assets, such as real estate, private jets, yachts, etc., by dividing their ownership cost into more affordable shares. Also known as co-ownership, it allows multiple investors to benefit from their share in any appreciation in market value and rental revenue of an asset.

A significant portion of investments in this model is flowing into the residential and commercial real estate market by way of fractional ownership platforms. Such ventures provide the average high net-worth investor a relatively economical entry into assets that are otherwise dominated by wealthier counterparts. The hassle-free model is helping owners overcome the constraints of sole ownership—that is bogged down by large investments, complicated paperwork, a lack of transparency, and management concerns. Besides, fractionally owned properties often have professionally managed finances, maintenance, and legalities. These perks are further driving the trend by providing a hands-off investment experience to owners.

Shravan Gupta, co-founder and CEO of fractional ownership firm Yours, says the customised experience an owner gets every time they check in, is a key part of the play. To offer a seamless experience, the company encourages owners to list out their requirements before checking in. From how many chilled beer cans need to be available to which room freshener should welcome the guests, an array of possibilities are offered. These, apart from services such as professionally trained staff, including specialised chefs-on-demand, has made the model more attractive. Per data from Knight Frank, the market size of fractional ownership properties in India—growing at an annualised rate of 10.5 per cent—is expected to expand by 65 per cent, from $5.4 billion in 2020 to $8.9 billion in 2025.

“Various factors like diminished affordability of premium properties, changing lifestyle and investment preferences, smooth tech-facilitated user experience, and the rising number of start-ups and investment platforms, have all contributed to the trend,” says Vimal Nadar, Senior Director and Head of Research of Colliers India. Although the underlying assets range from commercial property to farms and vacation homes, the second-home segment is the one seeing the most activity. Moreover, investors are flocking to popular tourist destinations like Alibag, Lonavala, Goa, Kodagu, Rishikesh and Shimla, among others, for their second homes.

Amit Goyal, MD of India, Sotheby’s International Realty, says the market may be growing at a fast clip but it is yet to reach full potential. “The activities are currently in the range of properties worth `10-20 crore that are being turned into holiday homes. Mostly, there are six to ten co-owners... The India market is more concentrated in that range,” he says. Yours, for instance, deals in homes priced between `5 to `20 crore in locations like Goa, Alibag and the Nilgiris, where properties are divided into eight equal shares. The platform floats a special purpose vehicle (SPV) for each property, and the co-owners own shares in it. “Globally, and research also corroborates this, our calculations show that eight is the right number for slicing the ownership of a second home. It gives roughly 45 days of ownership a year to each shareholder,” says Gupta.

Then there is Bengaluru-based Strata that specialises in fractional ownership of premium commercial real estate. Its Co-founder and CEO Sudarshan Lodha, says the space is seeing interest from diverse professionals like lawyers and doctors and even entrepreneurs. “Their first objective is to get exposure to the real estate market. And professionally acquired and managed commercial assets are a lucrative avenue now,” he says. But challenges remain. Per Colliers’ Nadar, investor appetite for fractional ownership is “still limited due to a lack of a standardised framework, independent valuation and proper due-diligence”. Taking note of such concerns, India’s markets regulator Sebi has recently proposed bringing fractional ownership platforms under its ambit. Nadar says that HNI participation in the model would also increase as a regulatory framework will encourage consolidation and maturity on the supply side.

Apart from real estate, yachts and private jets are also on the co-owners’ radar. The market for these, however, is still nascent, says Sotheby’s Goyal. He cites the unsuitability of Indian cities to house or host yachts as one of its biggest disadvantages. “That’s why yachts that are parked in India and owned by Indians are rare.” Bengaluru-based Champion Yacht Club is among the handful of firms that offer fractional ownership of luxury yachts. Costing `1.25-24 crore per share, a fractional owner may enjoy six weeks on his or her yacht every year. Meanwhile, fractional ownership of private jets is a relatively larger market, and growing due to the increasing numbers of HNIs in the country. Moreover, unlike yachts, private jets save time spent travelling even for business purposes instead of just pleasure, apart from providing a premium experience. That, experts say, plays to the jets’ advantage.

Whether it’s private jets, yachts or second homes at coveted holiday destinations, with fractional ownership fast catching on, luxury as you know it is surely getting redefined.

@arndutt