The overall gloom cast over the real estate industry on account of the COVID-19 pandemic has brought to light several unconventional methods to keep the dreams of homebuyers alive while developers strive to stay afloat. In fact, the pandemic has proven to give the necessary impetus and stimulus for people to invest.
A growing number of Indians are acquiring slices of rent-yielding residential and commercial properties, owning parts of expensive property, in a way that is comparable to investing in stocks of a company. Fractional real estate, as the concept is known, allows investors to buy, say, 1% of a vacation home for a minimum amount and use and occupy it while earning rental income. What’s interesting is that weekend properties were neither essential nor urgent, but COVID-19 has changed this perception.
Such realty ownership concept has arisen predominantly from the Work-From-Home culture and subsequent work-vacation culture, attracting NRIs and the domestic demographics alike. Such a property acts as an asset, attracting a plethora of investors, and becoming a potential Special Purpose Vehicle-related investment.
Emerging as a completely new form of realty investment arena wherein the property in question not only attracts a variety of classes as investors but also ceases to act as an overly expensive property yielding no returns.
From the taxation standpoint, the fractional ownership of property opens such owners to a plethora of taxable liabilities, when comparing the yearly taxation related costs of such interests, prospective buyers or their counsel/advisors need to be sure of the usage arrangement, location, ownership size, basic amenities, and other items.
A unicorn investment refers to a startup avenue/venture, occupying less than $1 billion of the industry share. Considering the fact that this sort of timeshare arrangement is a novel arena of investment for the Indian masses, the value of such investment could possibly render the whole idea a potential cash cow for the Real Estate developers adapting to such forms of investment.
Especially with the pandemic having rendered the traditional and conventional real estate an under-yielding area of investment in the markets currently, fractional ownership might just pave way for the steady boom in the real estate sector.
Whilst fractional ownership may appear to be an inexpensive mode of investment to potential investors, it comes with a plethora of pros and cons. Procedures involving the investment in such ventures could involve detailed due diligence and legal red-tapism, not paying attention to such procedures could end up providing stressed properties in the hands of lesser advised investors.
Moreover, expenses considering maintenance of the property, management expenses, and any such costs could essentially tip the scales against the owners should they not be able to actually utilize the property within their arrangements.
Having said that, the benefits accruing out of part ownership of vacation properties, while might not account monumentally in financial terms, the leisurely advantages of utilizing such property allow the investors to change their workspace surroundings or in general, allows them to choose rather inexpensive modes of vacation. Furthermore, the ownership of real estate may act as the potential for lower-class investors who may want to opt for lesser investments.
As has been numerously recounted above, fractional ownership could prove to be the gateway to a real estate investment boom the sector so gravely yearns for, however, the legal procedures involve might turn off a certain class of investors, moreover, a relatively newer arena of investment always ends up taking a lot more time in yielding the benefits, even if the time-value of money is rather unaccountable, since the property provides more leisurely than commercial benefits, however, the case may differ.
Timeshare investments, while popular in western investment culture, are considered to be a relatively nascent area of investment, particularly while fractional ownership is considered to be the gateway to the current unstable recession in the real estate market. However, given the correct legal framework and taxation incentives, the current status of such investment could be elevated to providing the work-vacation culture with the stability that the recent short-lived boom is testament to.
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