Holiday homes and luxury second homes could drive next leg of fractional real estate growth: Harish Fabiani

Time of India

10 hours ago

Fractional ownership in India is extending beyond commercial spaces, now encompassing holiday and luxury second homes, driven by rising property costs and evolving lifestyle preferences. This trend is fueled by the booming travel economy, with the vacation home fractional market projected to reach USD 25 million in AUM.
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Fractional ownership in India is moving beyond commercial offices and warehouses to tap into lifestyle-driven demand.According to Harish Fabiani, Group Chairman of IndiaLand Properties, holiday homes and luxury second homes are emerging as the next growth frontier.Rising property prices, evolving lifestyle preferences, and the booming travel economy are set to accelerate this trend, with the vacation home fractional market alone expected to reach USD 25 million in AUM over the next few years. Edited Excerpts – commercial real estate in India?A) To begin with, fractional ownership has democratized access to real estate investment in India. Through regulated digital platforms and SM REITs, both retail investors and HNIs can now co-own premium commercial properties such as office spaces and warehouses with as little as INR 5-10 lakh, which previously required crores to own.In return, they earn rental income and benefit from capital appreciation while enjoying perks like professional management and enhanced liquidity options that were previously unavailable. This simplified access and benefits are further supporting the growth of India's USD 500 million fractional real estate market.A) Yes, fractional real estate is getting recognized as a lucrative alternative to traditional fixed-income options. To begin with, investing in fractional real estate provides inflation-adjusted passive income through rental yields and offers the potential for capital appreciation at 11 to 18% IRR.In addition to monthly payouts, investors can diversify across multiple properties, which gives fractional ownership a clear edge over most debt instruments.From a technical perspective, reputable fractional ownership platforms typically offer greater transparency and access to real-time data.This helps simplify the investment process and lowers entry barriers for first-time investors, in turn, enabling them to explore asset classes beyond fixed-income instruments.A) Yes, investors can invest in commercial or residential properties outside India and gain exposure to global rental yields. Leading fractional ownership platforms enable retail investors to purchase shares in properties located in prime markets with a relatively low minimum investment, which diversifies their portfolios.These platforms also provide the necessary support and guidance to navigate international real estate markets, which makes it easier for retail investors to manage their global property holdings.A) Generally, rental yields from fractional ownership match or slightly exceed those from direct ownership, particularly for premium Grade A commercial assets.Data suggest that fractional ownership in premium commercial real estate offers net rental yields of 6 to 9% annually, while direct ownership delivers similar returns for commercial properties in top Indian cities.If we must highlight, the key difference between the two lies in their management approach and investment structure.A) Some fractional ownership platforms may lack uniformity in investor disclosures, a standard operational framework, and independent property valuations.Additionally, limited liquidity, evolving regulations, potential disputes among co-owners, and operational management risks are concerns that could expose investors to misselling.That's why we recommended conducting due diligence on both the property and the platform's governance, ensuring regulatory compliance and reviewing exit options and related documentation.A) Industry-wide trends suggest a rise in fractional ownership due to rising property prices, consumers' changing lifestyle preferences, and an increasing number of travel tech startups.Notably, the holiday homes market, in particular, is expanding rapidly and is expected to grow by more than 20% annually over 5 years. These properties typically record 8 to 10% capital appreciation annually.Meanwhile, homes that can be let out fetch rental yields of around 5 to 6% annually. Even though the rental yields are relatively lower than commercial assets, they offer better returns than traditional homes.Taking a cue from these trends, fractional ownership platforms are expanding to luxury second homes. Currently, the vacation home fractional ownership market is at a nascent stage but it is estimated to become USD 25 million in terms of AUM.While the sector is nascent compared to commercial real estate, digital real estate platforms and regulatory support could drive the expansion of this investment model into lifestyle-oriented properties.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)