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Fractional ownership of property is a rewarding possibility to generate wealth, build a portfolio and maintain passive income. This feature explores this growing trend...
May 28, 2022 | Aaleen Parulekar | UAE | Property Management
Fractional Ownership of a property refers to a scenario where a group of investors pool in funds to purchase a property. By sharing passive ownership of a high-value asset, this approach reduces the financial burden on a single investor to own a property while empowering them to leverage opportunities in real estate.
As a physical asset that is always appreciating, property investment is always seen as a sound long-term investment. Direct ownership of such assets is a great way to generate passive income for individuals. However, over the years the terms of ownership have evolved constantly. This is largely due to shifting business models across organizations and updated property ownership laws. Fractional Ownership of assets is a rewarding possibility to generate wealth, create a portfolio, and maintain a passive income. However, a concept as fresh as this seems daunting to someone unfamiliar with its functioning. While commercial property investment has always been the playground for institutional investors, fractional ownership is an emerging concept that new-age investors are scrambling to participate in - new opportunities at a fraction of the cost.
The real estate business in the UAE is currently going through a boom that has resulted in a major spike in prices and a rise in the minimum amount that can be invested by foreign nationals. With rental and property prices reaching an 8-year high, the current scenario rivals the real estate boom of 2012-13.
A steadily growing economy, a solid vaccination drive, well-planned administration, and a welcoming cultural environment are all factors that play a part in making UAE an investor haven. While investment in the region seems like both a safe as well as a lucrative deal that has garnered the attention of investors worldwide, its steep increase has made it an opportunity reserved only for a niche few. Thus, the possibility of Fractional Ownership of property is an attractive deal to those looking for investment opportunities in the region.
Based on the concepts of collaboration and contribution, Fractional Ownership allows the younger generation of investors (Millennials and Gen Z) to share passive ownership of a high asset value with unrelated parties. This is a concept that essentially allows everyone to bring something to the table. All parties involved share the expenses incurred as well as income generated from the investment along with holding accountability for the property.
Fractional Ownership of property does not refer to owning a fraction of the space but owning the property for that fraction of time. So in a scenario where an investor owns 1/5th of property, they are entitled to 1/5th of the time in a year or tenure of their ownership. For example, in a year this could be 10 weeks of time while in an ownership tenure of 50 years this can amount to 10 years of ownership.
This makes Fractional Ownership a concept very similar to that of Timeshare.Timeshare became increasingly popular globally in the 1960s, allowing users to buy the right to use a property for a certain period of time. The two concepts have a key distinction. While Timeshare only allows a user to buy the rights to use a property, Fractional Ownership in addition to this allows users to buy equity or ownership of the property as well.
An additional benefit is the possibility to rent out the property. In a scenario where a part investor does not use the property for all of the days in their fraction, they are allowed to rent out the property to third parties. Often Fractional Ownership is used by those looking to invest in holiday homes without having to pay the same cost they would to outrightly buy the property.
Collaboration of the service with tech-enabled platforms and applications makes this process hassle-free for users. In the last few years, multiple platforms that promote fractional ownership have been set up across the UAE. These organizations have reported being inundated with requests and inquiries, pointing towards a high level of demand for the service. Since the launch of its Fractional Ownership platform in December, Dubai-based Lootah Real Estate Development has received over 3,000 inquiries from interested buyers. Platforms like Real Share and Smartcrowd promote Fractional Ownership, allowing both local and global investors to use their platform to invest in property starting from values as low as AED 5,000.
Once they register and make their profiles on the platforms, users can invest in Fractional Ownership of a property through three easy steps. These include browsing the possible investments on offer, making the investment through online transactions, and immediately generating income once the funding is complete. These platforms do not require the paperwork to be complete for the user to start earning from their investments.
While the possibility for easy and comparatively hassle-free passive income generation is a lucrative deal, users must be careful and do their homework before investing. Amendments in the incoming immigration and regulatory policies, changes in full company ownership laws, and a growing trend of renters (both local and foreign) seeking out homes to invest in, all contribute to the growing use of such platforms and services.
Fractional or part ownership of property assets opens up investment opportunities for a large cohort of individuals that were previously unable to invest in real estate in the UAE. This inflow combined with the increased settlement of entire families of overseas nationals who work in the region has resulted in a spike in resident numbers as well.
This massive influx has created a whole new demographic of users for the real estate sector and its associated industries. Community Management, Facility Management, and Property Development services will see a spike in demand, owing directly to the increased numbers of projects being installed to meet the raised demand.
