While fractional ownership of a rent-yielding office space or a warehouse has become common, the holiday home segment has just started fractionalising the asset, according to industry executives.
“Fractional ownership makes it democratic and accessible for a larger audience to participate in real estate investing. The sector definitely needs guidelines and a framework to operate,” said Shravan Gupta, CEO, Yours, a company that provides co-ownership of luxury second homes.
Industry experts said the primary benefit of the regulation would be to safeguard investor interest and to give them comfort. “This regulation will definitely give a boost and help grow the fractional ownership segment of both commercial and residential real estate,” Gupta said.
The platform plans to submit suggestions to the government as the proposal documents largely encompass commercial real estate.
“We want Sebi to include holiday homes, hotels and resorts also in the list,” said Saurabh Vohara, founder of ALYF, a holiday home platform. “Also, we want the criteria for rental income to be reviewed as a group of people might want to buy it for their own consumption. Overall, the guidelines will increase trust in the segment and there will be more accessibility.”
Fractional ownership of holiday homes – from flats to condominiums and villas – has emerged as a preferred choice of consumers seeking to purchase a second home.After the Covid-19 pandemic increased demand for holiday properties, many companies providing fractional ownership have stepped up to assist buyers in owning a luxury home for one-eighth of the cost of purchasing one outright.
“The way REITs (real estate investment trusts) helped commercial real estate, the proposed regulation will help the holiday home segment. It will create trust and buyers will not hesitate in co-owning a home,” said Mohit Gupta, co-founder, Equity Address.
The company is planning to explore several second home real estate options to meet the demands of people aspiring to own a second home ranging between ₹2 crore and ₹8 crore, with investments starting as low as ₹20 lakh per investor.
In a discussion paper, Sebi proposed that such platforms be registered under the Regulatory Framework for Micro, Small and Medium (MSM) REITs. Each should have separate trustees, sponsors and investment managers, it said. These schemes shall not be allowed to raise debt.
The Sebi paper said the sponsor and investment manager are expected to have a net worth of ₹20 crore and ₹10 crore, respectively. The minimum subscription size for MSM REIT scheme units will be ₹10 lakh and they will be treated as one unit, as per the proposal.