Fractional Ownership and Blockchain as tools revolutionizing the Real Estate Sector

Real estate has been considered to be one of the safest investments. Apart from risk and safety of investing, investors are now looking to invest their money in options that will earn them better returns. Thus they have started exploring various investment options and evaluating the benefits of investing in each of these options.

Mutual funds, real estate, stocks, etc. have gained prominence as people prefer to invest in
options capable of earning them higher returns in a short term. Investing in real estate may be challenging due to its high capital requirements. However, by ways of fractional ownership and blockchain, investors are now able to invest in large ticket properties that are situated in the prime locations of India, with small capital investments.

UNDERSTANDING FRACTIONAL OWNERSHIP

Fractional ownership as a trend started gaining prominence in the Indian market in the last five years. Fractional ownership is a method of investing whereby investors invest in small portions and gain the right to use the property. For example, let’s say there is a 1000 sq. ft. office space available in Kolkata for Rs. 50 Lakhs. Now, by investing through the method of fractional ownership, 10 diverse and unrelated individuals can invest in this property by making a payment of just Rs. 5 Lakhs each. In doing so, each of these 10 investors can invest and own 100 sq. ft. each and also earn 1/10th of the total rental yield of the property. One of the benefits of investing through fractional ownership is that you can exit the investment at the prevailing market price of the property.

A fractional ownership portal has stated that investing in commercial real estate property through the fractional ownership method, can earn the investor an annual return of 14-20%. This percentage has been calculated considering the escalation of property price and the increasing demand for rental spaces.

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UNDERSTANDING BLOCKCHAIN IN REAL ESTATE

Earlier, investments that include large transactions were conducted through face-to-face means, and transacting such huge funds through digital means was never the norm. The introduction of blockchain has started to evolve the previously followed trends of investment and has introduced smart contracts which allow trading of real estate assets to be tokenized and traded like cryptocurrencies.

Blockchain has also enabled buyers and sellers to connect through newer means. It has helped in eliminating the cost of hiring intermediaries which have been instrumental in further reducing the cost of purchasing the property. Some of the prominent ways in which blockchain has affected real estate include:

  • a. Opened up newer ways to trade your real estate assets. Blockchain has changed the traditional way of selling your property and has set up an online marketplace for your real estate assets.
  • b. Helped in eliminating intermediaries such as Brokers, lawyers, and banks. This in turn has helped in reducing the cost of purchasing a property.
  • c. Real estate has been traditionally considered to be an illiquid asset. However, blockchain has helped in tokenizing real estate and has made it readily tradable. Thus, the sellers no longer have to wait for buyers with the ability to afford their entire property to sell their property and liquidity their assets.
  • d. Blockchain has been instrumental in eliminating the stress of real estate being a huge capital investment as it encourages fractional ownership whereby investors can visit online trading platforms and pool in their funds to buy big-ticket properties that too in prime locations.

Let’s understand further how blockchain and fractional ownership have made big-ticket properties accessible for investors.

FRACTIONAL OWNERSHIP AS AN INVESTMENT TOOL

As already stated, blockchain technology provides different investors with innovative means or tools to invest in large real estate properties. Blockchain has been instrumental in changing the traditional means and has opened up smarts means to trade your assets. Some of how blockchain and fractional investment have acted as an investment tool for purchasing properties in prime locations have been discussed below.

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A. Democratizing Large Scale Investments

Fractional ownership is a method of investing in real estate whereby investors invest in certain percentages. The process of fractional ownership is carried out generally by investor’s pooling in funds in a certain percentage and registering themselves as co-owners of the property. Several real estate companies have now popularized the concept of fractional ownership in India by allowing several investors to make small token investments in big-ticket properties, situated in prime locations such as Bangalore, Hyderabad, Chennai, Mumbai, and Delhi.

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The present category of investors includes those young adults between 25- 40 years, who are searching for different investing methods to eliminate taxed interest rates that are offered by banks. They are looking for investment opportunities whereby high risks have been adjusted and offer higher ROI.

Over the years, rental real estate properties have been identified as the best way to invest in real estate as it offers passive income. Many real estate experts have also identified the commercial real estate sector as the best to earn high rental income. However, investors have been reluctant to invest in commercial properties due to their high capital requirements. Blockchain and fractional ownership have made investments easier as you can pool in smaller funds and acquire a share in such big commercial properties now.

B. Commercial investments made profitably

REITs have been instrumental in making commercial investments more lucrative. It has brought in several benefits to the investors as it offers higher dividends, transparency, diversification of your portfolio, and lowering your risk of investment. The concept of REITs has only been recognized and approved by SEBI in recent years and thus it is yet to be standardized to include REITs in selling commercial real estate properties.

C. Blockchain technology to legitimize property transaction

The Real Estate Regulation & Development Act (RERA) was introduced to bring in
transparency in real estate transactions and regulate the same. India was also very quick to adopt the technological way which has been paved by different real estate platforms. The emergence of the pandemic has further led to the improvement of technological means for investment as buyers now view their properties through online means and decide their ideal investment. The online real estate platforms carry out the online investing process by providing joint owners of a fractional ownership property with a digital certificate that acts as authenticated proof of property transaction. They have been recognized as a new measure to enshrine real estate rights on the owners as they are crypto assets that have been registered using blockchain technology. Thus these digital certificates are immutable and verifiable by the investors.  

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BOTTOM LINE

The real estate sector is also progressing ever since we have entered the digital era. Various technological advancements have been brought in to eliminate the flaws of previous real estate transactions. These technological advancements made with the help of blockchain have been instrumental in attracting investors which have been otherwise reluctant in investing in real estate.

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Blockchain technology and fractional ownership has reduced the cost of investing and now you can invest in big-ticket real estate properties by making smaller investments. It has opened up a smart marketplace for real estate assets which has further boosted the demand for the sector.Thus investing in prime locations of India has become more easy and accessible.

Assetmonk is a smart platform offering commercial and residential property investments in
prime Indian cities such as Bangalore, Chennai, and Hyderabad. Assetmonk offers fractional
ownership investment opportunities. By investing in any of these options you can earn rental income and profits on the sale of the asset. Visit us for more details.