March 5, 2024 | Reading Time: 3 Minutes
Real estate, a favored asset class among investors, has seen the emergence of alternative investment options amidst soaring property prices. Fractional real estate, allowing individuals to invest in portions of properties, has gained attention, yet faces hurdles in adoption and understanding.
Shiv Parekh, CEO of hBits, identifies three key obstacles to fractional real estate’s uptake:
- Newness and Awareness: Fractional ownership in commercial real estate is novel, lacking the familiarity of traditional investments like mutual funds. Investors may hesitate due to limited understanding of its benefits and strategic role.
- Co-Ownership Dynamics: Shared decision-making and reliance on property managers diminish individual control. Ambiguities in legal frameworks exacerbate concerns, hindering risk-averse investors.
- Liquidity and Legal Uncertainties: Managing fractional ownership through Special Purpose Vehicles (SPVs) poses liquidity risks. Regulatory ambiguity further complicates matters, with uncertain exit strategies and dispute resolution mechanisms.
Addressing liquidity concerns, Parekh anticipates improvements with forthcoming Real Estate Investment Trust (REIT) regulations, potentially enhancing liquidity through stock exchange trading.
Exit challenges remain, with Sourabh Bansal of Magicrete noting limited secondary markets and cumbersome transactions. Despite hBits’ facilitation efforts, exiting remains complex, demanding rigorous due diligence and realistic timelines.
Taxation adds complexity, with varying treatment of rental income and capital gains. Sourabh emphasizes the need for expert advice to navigate tax nuances effectively.
Pratik Kataria of Sainath Developers advises investors to stay abreast of regulatory changes and market dynamics. Vigilance, diversification, and informed decision-making are essential for navigating the evolving landscape of fractional real estate in India.
In conclusion, proactive adaptation and thorough understanding of regulatory frameworks are crucial for investors seeking to capitalize on fractional real estate amidst evolving market dynamics.