Now, co-own your dream holiday home with help from new realty apps
Start-ups are simplifying fractional ownership, allowing more people to invest in assets they couldn’t otherwise afford.Updated: Oct 21, 2019 16:50 IST
Want to co-own a house, use it part of the time, rent it out and, in a few years, divest? There’s an app for that. Startups such as Bengaluru-based PropertyShare.in, Mumbai-based Share Acre and hBits are opening up the real estate market by adopting fractional ownership principles.
Where earlier you had to find your own partners — trusted people like friends or relatives — and still just hope that everything went well, here property can be owned by a group of strangers with similar investment objectives, income and maintenance costs are split and proceeds of the eventual sale shared, all according to formulas specified in advance by the apps. Most apps also offer property management services. All this makes it easier to invest in a dream holiday home, for instance, or in a higher-value real-estate asset.
Share Acre, for instance, allows up to 4 buyers to co-own holiday homes in Goa, Shimla and Dehradun. Here, one can choose to rent out one’s share of days, and use the property as a holiday home on select days. “Each individual can buy 25% or more of a property to use, rent and eventually sell,” says co-founder Nirbhay Bakshi.
That’s how 38-year-old accountant Ishaan Nath Sharma ended up with one quarter of a holiday home in Goa. “The ability to own a villa and use it, only for a fraction of the cost, is something that appealed to me most,” he says. “Earning rental income for unused days and capital gains when you sell the property make this form of ownership a sound investment for me.”
To keep things simple, Share Acre says they ask that all buyers liquidate their assets after five years. As per the co-ownership agreement, the property is then put up for re-sale at prevailing rates. “Within the five-year period, the asset can be liquidated if a majority of the co-owners vote to sell. If there is a tie, everything stays as it is for the remainder of the five-year period,” says Udai Chawla, co-founder Share Acre.
In this way, says Sharad Agrawal, executive director for capital markets at Knight Frank India, it is now possible to digitally represent properties and trade in real estate seamlessly without geographical restrictions.
Residential vs commercial
Companies such as PropertyShare.in and hBits implement fractional ownership principles in office spaces and offer property management services too. “From initial discovery to purchase agreements, management and updates on the property and market, renting, and exit, you can do it all via the platform,” says hBits co-founder Shiv Parekh.
“Fractional ownership of a commercial space is more lucrative if you are looking for rental yields,” says Rahul Grover, CEO of Sai Estate Consultants. “But if you’re only looking for capital appreciation then residential ownership makes more sense.”
With commercial spaces, Grade A properties with AAA tenants typically cost tens of crores. With part ownership, co-owners can invest as much as they can afford, and earn rental incomes of up to 8% a year, aside from the capital appreciation of the property.
“To a normal retail investor these investments were not accessible because of high ticket prices,” says Kunal Moktan, co-founder, PropertyShare.in. “So we’re making this more accessible.” There’s no lock-in period on PropertyShare.in you can sell your share whenever you want on their resale platform.
The app-based fractional ownership model therefore works similarly to a Real Estate Investment Trust (or REIT), except that you buy a share instead of buying units of a fund; and it’s not linked to the stock markets.
Exit, of course, is relatively more complicated than with either single ownership or a REIT, especially in the case of a holiday home. “Not all owners may want to sell at the same time. For a vacation home, there can be overlap of usage too,” says Anuj Puri, chairman of Anarock Property Consultants.
“The right time to exit is when your rent has just escalated, so you get the highest value for the property,” says Parekh of hBits.