Author - Mohit Bali

How Should You Invest in Fractional Ownership?: A Step By Step Guide

September 16, 2024

$Two investors visiting a commercial property they partially own through fractional ownership$

7 minutes read

Explore the essentials of Fractional Ownership, from key concepts and benefits to risk management and platform selection. This is your step-by-step guide to smarter real estate Investing.

Fractional ownership in real estate has gained significant traction as an innovative way for individual investors to gain exposure to high-value commercial properties. Unlike traditional real estate investments, where one must purchase a property outright, fractional ownership allows multiple investors to collectively own a share of the property. Each investor holds an equity stake based on their contribution, making it a more accessible and flexible approach for those looking to diversify their portfolios without the high capital requirements.

This model is particularly popular in commercial real estate, such as office buildings, retail spaces, or industrial complexes, where the property values are typically beyond the reach of individual retail investors. By pooling resources, fractional ownership democratises access to lucrative real estate assets, traditionally reserved for institutional investors

Nevertheless, while fractional ownership is an attractive option, it’s essential to approach it with a well-informed strategy. To maximise returns and minimise risks, investors need to take a systematic approach to evaluating and managing their investments. Read ahead to discover the key steps involved in intelligent investing in fractional ownership.

Step 1 – Research the Concept of Fractional Ownership

A good starting point is to familiarise yourself with the concept of fractional ownership, along with its benefits and potential risks.

What is Fractional Ownership?

Fractional ownership allows multiple investors to collectively own a portion of a real estate property. Unlike traditional real estate investments where one person owns the entire property, fractional ownership divides the property into smaller shares. This model is particularly useful for investors looking to enter the market with a lower initial capital.

For a more in-depth explanation of how fractional ownership works and how it differs from traditional real estate, you can visit our Comprehensive Guide to Fractional Ownership.

Benefits of fractional ownership real estate investments

Affordability: Invest in high-value properties without the full purchase price.
Portfolio Diversification: Spread your investment across different properties, reducing risk.
Professional Management: Most fractional ownership models include professional property management.

Risks of fractional ownership real estate investments

Limited Control: Investors typically have limited say in the management of the property. Although they do have voting rights with regards to selling the property.
Liquidity Issues: Selling your share can be more challenging than traditional property sales.
Platform Dependence: The success of your investment can rely heavily on the platform facilitating the ownership.

If you’re interested in a deeper dive into the benefits and risks associated with fractional ownership, head to our guide here.

Types of Fractional Real Estate Investments

There are two main types of fractional real estate investments: commercial and residential properties. Commercial properties often generate higher rental yields, while residential properties can offer more stability. Investors also have the choice between existing properties and new developments, each with its own pros and cons.

For detailed insights on the different types of fractional ownership investments, check out this comprehensive guide.

Step 2 – Evaluate Your Financial Position and Goals

Lets’ explore how to assess your financial readiness and define clear investment goals to ensure fractional ownership aligns with your broader financial strategy.

Determine Your Investment Budget

Before diving into fractional ownership, it’s crucial to assess your available capital. Understanding how much you can comfortably invest in real estate is key to ensuring you don’t overextend your finances. A general rule of thumb is to allocate a portion of your total investment budget specifically for fractional ownership, keeping in mind other financial obligations and investments.

For more guidance on how to budget for fractional ownership, consider how much you can invest without affecting your liquidity and other investments. Typically, a balanced approach ensures you’re not putting all your capital into a single asset.

Clarify Your Investment Goals

Once you have a clear sense of your budget, the next step is to define your investment objectives. Are you aiming for short-term gains or long-term appreciation? Fractional ownership can serve both goals, depending on the property and market conditions. Some investors prioritise rental income, while others seek capital appreciation over time. It’s also important to assess your risk tolerance and how this investment fits into your broader portfolio. Diversification is a key advantage of fractional ownership, so understanding your appetite for risk will guide you toward the right property type.

Evaluating your financial position and aligning it with your goals ensures that your investment is not only feasible but also aligned with your broader financial strategy.

Step 3 – Choose the Right Fractional Ownership Platform

Here are a few things to be on the lookout for:

Ensure Regulatory Compliance: The platform you choose should ideally have a portfolio of past opportunities (real estate) that are RERA compliant. These legal protections ensure your investment is safeguarded and the platform operates with accountability. Most of the fractional ownership platforms in India are in the process of transitioning to SM REITs structure to comply with the regulations that were introduced on March 8, 2024 – SM REITs.
Research Platform Reputation: Look into the platform’s track record, investor reviews, and financial health. A well-managed platform with a solid history of delivering consistent returns is key to minimising risk.
Check for Transparency in Fees and Management: Understanding the fee structure is essential. Make sure the platform is transparent about how fees are charged, how rental yields are divided, and what ongoing management processes are in place.

WiseX, India’s first fractional ownership checks all these boxes!

WiseX ensures your investment is protected. With over INR 500 crore in assets under management and a strong portfolio of commercial properties, WiseX has a proven track record of delivering returns. The platform also offers full transparency regarding fees and management, allowing you to invest with confidence and clarity.

Step 4 – Select the Right Property

In this section, we’ll guide you through selecting the right property by examining relevant factors:

Property Type and Location

When it comes to fractional ownership, choosing between commercial and residential properties is a key decision. Commercial properties generally offer higher rental yields but may come with more market volatility, while residential properties can provide stable returns with lower risk. Beyond property type, the location is critical. Prime areas tend to deliver better rental income and long-term appreciation, making them ideal for investors seeking consistent returns and capital growth.

Evaluate Rental Income and Financial Projections

Before making an investment, it’s important to thoroughly assess the property’s rental income potential. Review the property’s historical performance if available, and study financial projections based on market trends. Doing so allows you to understand the expected rental yield and appreciation over time. Reliable platforms will provide transparent financial data, making it easier to evaluate potential returns.

New Developments vs. Existing Properties

Investing in new developments or pre-construction projects can offer early access to properties at lower costs but may carry more risks, such as construction delays. On the other hand, existing properties come with a track record and offer immediate rental income. Weighing the risks and expected timeframes for returns is crucial for selecting the option that best aligns with your financial goals.

Step 5 – Legal Due Diligence and Documentation

Let’s go through the importance of reviewing ownership structures, ensuring clear exit strategies, and understanding the tax implications associated with fractional ownership investments.

Review the Ownership Structure

In fractional ownership, properties are often held through Special Purpose Vehicles (SPVs) or Real Estate Investment Trusts (REITs). Understanding how these structures work is vital for knowing your legal rights and obligations as a co-owner. Ensure the platform offers clarity about how the ownership is divided and how decisions are made regarding the property.

Ensure Clear Exit Strategies

Liquidity is another crucial aspect of fractional ownership. Before investing, review the platform’s policies on selling your shares. Look for platforms that provide access to secondary markets where you can sell your stake if needed. Be cautious of contracts with hidden clauses that may restrict your ability to exit the investment smoothly.

Clarify Tax Implications

Understanding the tax implications of your investment is essential. Rental income earned through fractional ownership is subject to taxation, as are any capital gains realised upon selling your shares. Consult with a tax advisor to fully understand your obligations and how they affect your overall investment returns.

Step 6 – Manage Your Investment Post-Purchase

Tracking Your Investment Performance

After purchasing a fractional ownership stake, it’s important to regularly monitor the property’s performance. Many platforms offer tech-enabled dashboards that allow you to track rental income, expenses, and updates on the property’s condition. Conduct periodic reviews to ensure your investment is performing in line with your expectations.

FAQs

Q.1. How much money is required to invest in fractional ownership?

The minimum investment amount for fractional ownership can vary widely depending on the property and the platform. Generally, fractional ownership allows investors to participate with relatively smaller amounts compared to direct property ownership. Typical minimum investments can range from INR 5 lakhs to INR 50 lakhs or more, depending on the value of the property and the structure of the investment. This accessibility enables individuals with moderate capital to invest in high-value properties that would otherwise be out of reach.

At WiseX, you can start investing with a minimum of just INR 25 lakhs.

Q.2. Can I sell my fractional ownership shares easily?

The ease of selling fractional ownership shares largely depends on the platform and the specific investment terms. Liquidity can be a concern, as not all platforms offer a straightforward secondary market for reselling shares. Some platforms facilitate secondary market transactions, allowing you to sell your shares to other investors. However, the process can sometimes be slow and may involve additional fees. It’s important to review the platform’s exit strategy policies and understand any potential restrictions or conditions associated with selling your shares.

Q.3. What taxes apply to fractional ownership income?

Fractional ownership income is subject to taxation, including:

Rental Income: The rental income you receive from fractional ownership is taxable under the Income Tax Act. This income is categorised as “Income from House Property” and is subject to tax based on your applicable income tax slab rates.
Capital Gains: If you sell your fractional ownership shares and realise a profit, the capital gains are also taxable. Short-term capital gains (for assets held less than three years) are taxed at a higher rate, while long-term capital gains (for assets held longer) benefit from lower tax rates. The exact tax rate depends on the holding period and other factors.

Q.4 How do I know if a fractional ownership platform is trustworthy?

To determine if a fractional ownership platform is trustworthy, consider the following tips:

Research Reputation: Look into the platform’s track record, including investor reviews, financial health, and historical performance. A reputable platform will have a proven history of successful investments and satisfied investors.

Assess Transparency: Evaluate the platform’s transparency regarding fees, management processes, and ownership structure. A trustworthy platform will provide clear and detailed information about all aspects of the investment.

Bottom Line

Now that you have a comprehensive understanding of fractional ownership and the steps involved in making a smart investment, here are some resources to further guide your journey:

Take a look at WiseX’s commercial real estate fractional ownership opportunities.
Book a call with a dedicated investment manager to learn more about the opportunities available.

Explore our articles on numerous subjects related to alternative investments.

What are Small and Medium REITs (SM REITs)? An Investor-Centric Regulatory Framework

August 28, 2024

Mohit Bali

Regulations

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12 minutes read

Introduced in March 2024 as an amendment to the REITs regulations of 2014, SM REITs lay out the regulations for investors, merchant bankers, trustees, investment managers to regulate fractional ownership as an investment structure.

In recent years real estate as an investment asset has remained inaccessible to the retail investor with high cost entry barriers. Nevertheless, with the advent of fractional ownership platforms, a lower entry barrier has been provided with technologically advanced management services and certified grade-A commercial and residential projects attracting the retail investor to venture into real estate and consequently diversify their investment portfolio. With the assets under management at these platforms reaching in the thousands of crores, SEBI deemed it necessary to be regulated.

The REITs regulations, introduced in 2014, were finally amended on March 8, 2024 to include SM REITs (Small and medium REITs) and laid out a comprehensive set of guidelines containing eligibility criteria, applicability, and regulations for investment managers, trustees, merchant bankers to best protect retail investors.

Explore this article to find out more about SM REITS.

Contents:

What are SM REITs?
Investment Manager’s Responsibilities
Merchant Bankers Obligations
Trustee’s Responsibilities
SM REIT Investment Benefits for the Unit Holder/Investor
Potential Risks in Investing in SM REIT
Difference between Fractional Ownership and SM REITs
Frequently Asked Questions
Bottom Line

1. What are SM REITs (Small and Medium REITs)?

SM REITs (Small and Medium REITs) are a category of Real Estate Investment Trusts designed specifically to cater to smaller and medium-sized real estate portfolios. The regulations for SM REITs, outlined by SEBI (Securities and Exchange Board of India), are aimed at creating a structured environment for the operation and investment in these types of REITs. This overview will cover the regulations concerning the trustee, investor, and unit holders (investors) highlighting their roles, requirements, and benefits.

In a rapidly evolving real estate landscape, SM REITs have emerged as a crucial vehicle for fractional ownership. By pooling funds from multiple investors to purchase and manage real estate assets worth anywhere between INR 50 – 500 crores, SM REITs further democratise property investment.

To prioritise investor protection, the Securities and Exchange Board of India (SEBI) has taken significant steps through the 2024 amendments to ensure that SM REITs operate in an investor-centric manner.

These amendments introduce a comprehensive framework that places investor protection at the forefront. By clearly defining the roles and responsibilities of all the parties involved, SEBI ensures that investors’ interests are safeguarded throughout the investment lifecycle.

2. Investment Manager’s Responsibilities

As per the regulations, investment manager means a company incorporated in India which sets up the SM REIT and manages assets and investments of the SM REITs.

The regulations go on to outline key responsibilities to ensure investment managers remain accountable for the smooth operation of essential functions within SM REITs.

Here is an overview of all of their obligations to the investor under the SM REITs regulations :

i. Setting up and managing SM REIT: The investment manager, on behalf of the trust, is tasked with establishing the SM REIT and overseeing its assets and investments.

ii. Operational Activities: The investment manager is responsible for the day-to-day operations of the SM REIT.

iii. Registration Application: The investment manager must apply for the SM REIT’s registration certificate on behalf of the trust.

iv. Compliance with Eligibility Criteria:

Net Worth: Maintain a minimum net worth of INR 20 crores, with at least INR 10 crores in positive liquid assets.
Experience: Either the investment manager or their key managerial personnel must have at least two years of experience in real estate or real estate fund management, or five years in these fields.
Independent Directors: At least 50% of the directors must be independent and not serve on another REIT or SM REIT.
Investment Management Agreement: Enter into an agreement with the trustee outlining the investment manager’s responsibilities.

v. Asset Identification and Management:

Identification: Specify the real estate assets or properties for acquisition in the draft scheme offer document.
Segregation: Ensure assets, bank accounts, investment or demat accounts, and books of accounts are segregated and ring-fenced for each scheme.

vi. Maintenance of Property Documents: Keep property documents and related papers in safe-deposit boxes at a scheduled commercial bank, with annual inspections by the trustee.

vii. Public Disclosure of Draft Scheme Offer Document: Make the draft scheme offer document available for public comment by hosting it on the Board’s, stock exchanges’, and associated merchant bankers’ websites for at least 21 days.

viii. Allotment Procedure and Basis of Allotment

Allotment of Units: The investment manager is responsible for allotting units to applicants after receiving the application sum. This allotment is done on behalf of the scheme of the SM REIT.
Ensuring Fairness in Allotment: Alongside authorised representatives of the designated stock exchange, post-issue merchant bankers, and registrars, the investment manager must ensure that the allotment process is fair and proper.

ix. Allotment and Listing of Units

Mandatory Listing: The investment manager must ensure that the units of the SM REIT scheme are mandatorily listed on recognised stock exchanges with nationwide trading terminals.
Timeline Adherence: The units must be allotted and listed within specified timelines. If the investment manager fails to meet these deadlines, they are required to pay 15% interest per annum to investors. This interest cannot be recovered as fees or in any other form payable by the SM REIT.
Compliance with Listing Agreement: The investment manager must ensure that the listing of units complies with the listing agreement between the SM REIT and the designated stock exchange.

x. Delisting of Units

Application for Delisting: The investment manager is responsible for applying for delisting of units if certain conditions are met, such as when public unit holding falls below the required limits, no assets remain in the scheme, or other regulatory violations occur.
Redemption of Units: In case of delisting, the investment manager must sell the assets of the scheme to redeem units for unitholders and wind up the scheme as per the Board’s specifications.

xi. Valuation of Assets

Annual Valuation: The investment manager must ensure that a valuer conducts a full comprehensive valuation of the scheme’s assets annually and submits the report within two months of the financial year-end.
Material Developments: In the event of material developments affecting asset valuation, the investment manager must require a new valuation within two months.
Independence of Valuer: The investment manager must ensure that the valuer is not an associate of the investment manager or trustee and that the valuer has the requisite qualifications and experience.
Submission and Disclosure: The investment manager must submit the valuation reports to the trustee, designated stock exchanges, and unitholders within one working day of receipt and ensure timely disclosure of the net asset value.

xii. Distributions

Distribution to Unitholders: The investment manager must ensure that 100% of the net distributable cash flows of the scheme are distributed to the unitholders and that distributions are declared at least once every quarter.
Timely Payments: Distributions must be paid within seven working days of declaration. If delayed, the investment manager must pay 15% interest per annum to unitholders.

xii. Prohibition on Related Party Transactions: The investment manager must ensure that the SM REIT does not enter into any transactions with related parties, except for payment of fees to the investment manager and trustee for REIT activities.

xiv. Oversight of Meetings: The investment manager is responsible for all activities related to unitholders’ meetings, including ensuring that resolutions requiring approval are properly passed and that unitholders’ rights are protected. The investment managers are subject to oversight by the trustee

xv. Appointment of Merchant Bankers: The investment manager must appoint one or more merchant bankers registered with the Board to manage obligations related to the issue.

3. Merchant Bankers’ Responsibilities and Obligations

Merchant banker's responsibilities as per the SM REITs regulations

A merchant banker is a financial intermediary registered with the Board, responsible for managing various aspects of the issue process related to SM REITs (Small and Medium-sized Real Estate Investment Trusts). Their primary duties include:

i. Draft Scheme Filing: The investment manager appoints merchant bankers to file the draft scheme offer document with the Board and the designated stock exchange. This document outlines the details of the SM REIT scheme.

ii. Addressing Observations: The merchant banker must address any observations or comments from the Board on the draft scheme offer document before the scheme’s launch.

iii. Public Communications Approval: Any public communications about the SM REIT scheme must be approved by the merchant bankers responsible for marketing the issue.

iv. Fair Allotment Process: Post-issue, merchant bankers, along with stock exchange representatives, ensure that the allocation of shares is done fairly. They maintain a final book of demand showing the allocation results and cooperate with inspections of the book-building process.

v. Post-Issue Responsibilities: Post-issue, merchant bankers manage activities such as refunds, allotments, and investor grievances. They must also release advertisements related to the issue’s oversubscription, allotment details, and other relevant information within specified timelines. They ensure that no misleading statements about the issue’s response are made while it is still open for subscription.

4. Trustee’s Responsibilities

A Trustee's responsibilities as per the SM REITs regulations.

A trustee refers to a trustee registered with SEBI under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993. The trustee holds the assets of the SM REIT and its schemes in trust for the benefit of the unit holders, ensuring compliance with the regulations.

Definition of "Trustee" as per the SM REITs regulations

Under the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2024, a trustee in the context of SM REITs is defined and tasked with several crucial responsibilities:

i. Asset Custodianship:

The trustee is responsible for holding and safeguarding the assets of the SM REIT and its schemes.
This includes ensuring that assets are properly ring-fenced, bank accounts are segregated, and property documents are securely maintained.

ii. Oversight of Investment Manager:

The trustee ensures that the investment manager adheres to the responsibilities outlined in the regulations.
They must ensure that the investment manager is not an associate and that they meet the qualifications regarding net worth and experience.

iii. Scheme Management:

The trustee is responsible for overseeing the activities and operations of the SM REIT’s schemes, ensuring they align with the trust deed’s objectives.
The trustee must ensure that each scheme’s assets are valued correctly and that real estate assets or properties are properly identified in the scheme offer document.

iv. Regulatory Compliance:

The trustee ensures that all public communications related to the SM REIT, such as advertisements, blogs, and press releases, comply with the regulations.
They also oversee meetings of unit holders, especially in issues related to changes in the investment manager, trustee, or any other significant operational changes.

v. Fiduciary Duties:

The trustee must act in the best interest of the unit holders, ensuring that all actions taken are in accordance with the regulations and the trust deed.
They are tasked with maintaining transparency, especially in financial matters, by ensuring timely submission of valuation reports and handling unit holder meetings as required by the regulations.

vi. Conflict of Interest Management:

The trustee must avoid conflicts of interest, particularly with the investment manager, ensuring impartiality in managing the SM REIT’s assets and operations.
By holding the assets in trust and maintaining oversight over the investment manager, the trustee plays a pivotal role in protecting the interests of the unit holders and ensuring compliance with SEBI regulations.

5. SM REIT Investment Benefits for the Unit Holder/Investor

i. Enhanced Transparency

Public Disclosure of Offer Documents: The investment manager is required to make the draft scheme offer document available for public comment for at least 21 days. This transparency ensures that potential investors have access to essential information before investing.
Regular Valuation Reports: The investment manager must ensure that comprehensive asset valuations are conducted annually and that these reports are promptly submitted to trustees, stock exchanges, and unitholders. This regular and transparent reporting allows investors to stay informed about the real-time value of their investments.
Timely Disclosures: The trustee is responsible for ensuring unit holders receive timely and accurate information about the REIT’s performance, financial status, and other significant matters, promoting ongoing transparency.

ii. Investor Protection

Safeguarding Investor Interests: The trustee holds the assets of the SM REIT in trust, ensuring that they are managed with the highest level of integrity and in the best interests of the unit holders. This fiduciary duty protects investors from potential mismanagement.
Prohibition on Related Party Transactions: SM REITs are prohibited from entering into related party transactions, with limited exceptions, to prevent conflicts of interest and protect unit holders from unfair dealings.
Mandatory Distribution of Cash Flows: The investment manager must ensure that 100% of the net distributable cash flows are distributed to unitholders, at least once every quarter. This guarantees that investors receive a regular return on their investment.

iii. Strong Compliance and Accountability

Obligations of the Investment Manager: The investment manager has several key responsibilities, including maintaining a minimum net worth, ensuring compliance with eligibility criteria, and adhering to strict timelines for unit allotment and listing. Failure to meet these obligations results in penalties, which provide an added layer of protection for investors.
Trustee’s Oversight: The trustee ensures that the SM REIT complies with all relevant laws and regulations, oversees financial management and property management, and addresses unit holder disputes. This oversight ensures that the REIT operates in a manner that protects the unit holders’ interests.

iv. Dispute Resolution and Risk Management

Complaint and Dispute Resolution: The trustee is tasked with handling disputes between the REIT, its investment manager, and unit holders, ensuring that investor complaints are managed fairly and transparently.
Risk Mitigation: The trustee oversees the implementation of risk mitigation strategies to protect the REIT’s assets and the interests of unit holders. This proactive approach to risk management reduces the potential for losses.

v. Legal and Ethical Operations

Legal Compliance and Ethical Standards: The trustee ensures that all actions taken by the REIT are legally compliant and ethical. They are also responsible for managing conflicts of interest, which further protects the unit holders.
Governance and Decision-Making: Regular trustee meetings ensure continuous oversight and decision-making on significant issues affecting the REIT, with the primary focus on protecting unit holders’ interests.

vi. Penalties and Compensation

Interest on Delays: If the investment manager fails to meet the deadlines for unit allotment and listing, they must pay 15% interest per annum to the investors. This provision ensures that investors are compensated for any delays and holds the investment manager accountable.

6. Potential Risks in Investing in SM REIT

While regulations definitely offer relief to investors, all investments come with associated risks.

Here are the risks associated with SM REITs investment opportunities:

i. Market Risk: The performance of SM REITs can be affected by fluctuations in the real estate market, including changes in property values, rental income, and overall economic conditions.

ii. Regulatory Risk: Changes in regulations or compliance requirements can impact the operation and profitability of SM REITs. Staying updated with regulatory changes is essential.

iii. Operational Risk: The success of an SM REIT depends on the effective management of its assets. Poor management decisions or operational inefficiencies can affect returns.

iv. Financial Risk: SM REITs often use leverage (debt) to finance their investments. High levels of debt can increase financial risk, especially if income from properties does not meet expectations.

v. Tenant Risk: The income of SM REITs relies on rental income from tenants. High vacancy rates or tenant defaults can reduce revenue and impact overall returns.
vi Property-Specific Risks: Individual properties within the SM REIT portfolio may face specific risks such as maintenance issues, regulatory compliance, or changes in local real estate conditions.

7. Difference between Fractional Ownership and SM REITs

As several prominent fractional ownership platforms transition to the SM REITs structure by obtaining the SM REITs licence, it’s important for investors to recognise the distinctions between these two investment types—fractional ownership and SM REITs.

Although both share core similarities, SM REITs are subject to more comprehensive regulations, providing investors with a more clearly defined and regulated investment option.

Features	Fractional Ownership (Real Estate)	SM REITs
Property Type	Typically preferred for Commercial Real Estate	Both allowed.
Investment Approach	Focused approach on a specific property	Focused approach on a specific property
Minimum Investor Ticket Size	₹25 Lacs amongst reputed platforms	₹10 Lakhs
Underlying Assets	Specific property	Specific property
Regulations	Companies Act	SM REIT(s) Chapter introduced in the REIT(s) act in March, 2024. Existing Fractional Ownership Platforms (FOP) to migrate here.
Offer Size	No such limit. Typically FOPs are offering properties ranging from ₹30-100 Cr	Between ₹50-500 Cr
Returns	Fixed rental income plus expected capital appreciation	Fixed rental income plus expected capital appreciation
Assets’ Development Requirements	Investments can be made in properties at any stage of development.	SM REITs to invest 95% of their investments in rent-yielding developed properties

To learn more about fractional ownership and the difference between SM REITs, REITS and fractional ownership, read: Comprehensive Guide To Fractional Ownership

8. Frequently Asked Questions

To understand SM REITs in detail is a herculean task and the government issued an official release of “Frequently Asked Questions (FAQs) – Framework for Small and Medium REITs” on June 18, 2024.

This SEBI document is a must-read for understanding SM REITs. It provides clear insights into the regulations, market opportunities, and risk management—essential for making informed investment decisions.

Q.1. Can the Investment Manager launch multiple schemes under an SM REIT?

Yes, the REIT Regulations allow the Investment Manager the flexibility to launch multiple schemes under a single SM REIT. However, it’s crucial for both the Investment Manager and the trustee to ensure that each scheme’s assets, bank accounts, investment or demat accounts, and books of accounts are kept separate and protected from each other. This segregation ensures the integrity and security of each scheme within the SM REIT.

Q.2. Which definition of “SPV” (Special purpose Vehicle) is to be considered for the SM REITs regulations?

Since the definition of SPV can be found in two separate places in the REITs regulations (new one being added along with the SM REITs amendment), for the purpose of SM REITs regulations the definition of SPV under section 26H (f) is to be considered.

Definition as per section 26H(f): “Special purpose vehicle” or “SPV” means any company which is a wholly owned subsidiary of the scheme of the SM REIT and the SPV shall not have any other capital or ownership interest in it

Q.3. Can multiple SPVs jointly own a single property?

According to REIT Regulations, an SPV must directly and exclusively own any assets acquired or intended to be acquired by the SM REIT scheme it belongs to. Since an SPV must fully own these assets on its own, multiple SPVs cannot jointly own a single property.

Q.4 Where can you find the official SM REITs regulations?

The official regulations for SM REITs can be accessed through the SEBI website. For detailed information, please refer to the SEBI Real Estate Investment Trusts (Amendment) Regulations, 2024, available at the following link: SEBI Real Estate Investment Trusts (Amendment) Regulations, 2024.

9. Bottom Line

Now that you have a sound understanding of the SM REITs regulations, here are some additional resources that will help you in diversifying your portfolio:

Take a look at WiseX’s commercial real estate fractional ownership opportunities.
Book a call with a dedicated investment manager to learn more about the opportunities available.
Explore our articles on numerous subjects related to alternative investments.

A Comprehensive Guide To Fractional Ownership

August 6, 2024

Mohit Bali

Fractional Ownership

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13 minutes read

Read through this guide to understand all there is to know about fractional ownership – its history, evolution, distinction from REITs and SM RIETS, legal framework, regulations, benefits and risks associated, tips for first time investors and FAQs.

Are you eager to understand how fractional ownership can diversify and enhance your investment portfolio?

Fractional ownership investments are rapidly becoming essential for retail investors. They offer steady, consistent returns and access to premium assets previously reserved for ultra-high-net-worth individuals, driving their increasing popularity.

To navigate this investment space effectively, it’s crucial to deepen your understanding of the concept. This article covers the topic along with several key considerations including the history and evolution of fractional ownership, the nature of fractionalized assets, the legal framework, the associated rewards and risks and much more.

Contents:

What is Fractional Ownership?
Evolution of Fractional Investing in India
Assets That Can Be Invested In Fractionally
How Fractional Real Estate Investing Works
Difference between fractional ownership, REITs and SM RIETS
Legal Framework and Regulations
Benefits of Fractional Real Estate Investment
Risks and Considerations
Tips for First-Time Investors
Frequently Asked Questions

1. What is Fractional Ownership?

Fractional ownership is an investment structure where multiple investors collectively own a percentage share of a high-value asset. Unlike traditional ownership, where one individual or entity owns the entire asset, fractional ownership allows multiple parties to share the costs, benefits, and responsibilities associated with owning and maintaining the asset.

Example: Consider a commercial property valued at ₹10 crores. If ten investors each contribute ₹1 crore, they each own 10% of the property. These investors share in the rental income generated by the property, and if the property is sold, they receive 10% of the sale proceeds. This model allows individuals to invest in high-value assets without needing to bear the full cost, spreading both risk and rewards among the co-owners.

2. Evolution of Fractional Investing

Fractional investing has evolved significantly over the past decade, driven by the increasing demand for alternative investments and the rapid growth of the real estate sector.

Here’s a brief timeline of its evolution (with a focus on India):

Early 2010s: The concept of fractional ownership began gaining traction globally, primarily in the U.S. real estate market, with early adopters exploring ways to pool resources to invest in high-value properties.

Mid-2010s: Indian investors started showing interest in fractional ownership, particularly in the luxury real estate segment. However, the concept was still in its nascent stages, with limited awareness and few platforms offering such investment opportunities.

2018-2020: The Indian market saw the launch of platforms dedicated to fractional ownership. These platforms began to popularise the concept, offering fractional investments in commercial properties and other asset classes.

2020-2021: The COVID-19 pandemic accelerated the shift towards fractional ownership as investors sought stable, income-generating assets amid market volatility. Since then, the Indian market has witnessed a surge in new entrants, heightened investor interest, and improved regulatory clarity, positioning fractional investing as a mainstream wealth-building strategy.

2024: The Securities and Exchange Board of India (SEBI) has recently approved regulations allowing small and medium real estate investment trusts (SM REITs) to offer fractional ownership opportunities in real estate. This development comes under the SEBI (REITs) Amendment Regulations, 2024, introduced in March. These regulations open new avenues for investors by enabling them to own portions of real estate properties, making real estate investment more accessible and diversified.

3. Assets That Can Be Invested In Fractionally

Here are some assets that one could explore investing is as a fractional owner:

i. Real Estate

Here are a list of real estate assets that can be fractionalised:

a. Residential Properties

Fractional ownership in single-family homes, apartments, and condominiums allows investors to own a portion of high-demand residential properties, generating rental income and benefiting from property appreciation.

b. Commercial Properties

Investing fractionally in office buildings, shopping malls, and warehouses offers exposure to income-generating commercial real estate, which often provides higher yields compared to residential properties.

c. Vacation Properties

Investors can co-own vacation properties like beachfront villas or mountain cabins earning rental income , and enjoying personal time if the agreement allows for interval ownership privileges

d. Farmland

Agricultural land, ranches, and vineyards can be owned fractionally, offering both the potential for land appreciation and income from farming operations.

e. Mixed-Use Developments

Buildings that combine residential and commercial units offer diverse income streams and the potential for higher returns due to their multi-functional

ii. Luxury Items

Here are a list of luxury assets that can be fractionalised:

Two investors flying together i their fractionally owned private jet.

a. Yachts

High-end sailing yachts and motor yachts can be owned fractionally, allowing investors to share the costs of ownership and maintenance while enjoying access to luxury boating experiences.

b. Private Jets

Fractional ownership in business jets or light jets provides investors with access to private air travel, with shared costs making it more affordable.

c. Exotic Cars

Supercars, vintage cars, and luxury sedans can be owned fractionally, giving investors the thrill of owning a high-end vehicle without bearing the full cost.

d. Jewellery

High-value jewellery pieces, rare gemstones, and designer collections can be owned fractionally, offering a unique investment opportunity in the luxury goods market.

e. Art Collections: Paintings, sculptures, digital art (NFTs)

Investors can co-own valuable paintings, sculptures, and even digital art (NFTs), benefiting from the appreciation of these assets over time.

iii. Business Ventures

Here are a list of business venture assets that can be fractionalised:

a. Startups

Fractional investments in tech companies, biotech firms, and app developers allow investors to gain exposure to high-growth sectors with significant upside potential.

b. Small Businesses

Restaurants, retail stores, and service providers can be funded through fractional ownership, enabling investors to share in the profits of successful small businesses.

c. Franchises

Investors can own a share in franchises like fast-food chains or fitness centres, benefiting from the established brand and business model.

d. Renewable Energy Projects

Solar farms, wind turbines, and hydroelectric plants offer fractional ownership opportunities in sustainable energy projects with long-term income potential.

e. Film Productions

Investors can participate in the funding of movie projects, TV series, or documentaries, sharing in the profits from successful productions.

iv. Sports and Entertainment

Here are a list of assets in the sports and entertainment space that can be fractionalised:

a. Sports Teams

Fractional ownership in professional teams, minor league teams, or esports teams allows investors to be part of the sports industry and share in the revenue generated.

b. Event Venues

Stadiums, arenas, and concert halls can be owned fractionally, providing income from events and long-term appreciation of the venue’s value.

c. Music Royalties

Investors can own a share of royalties from popular songs, albums, or music catalogues, earning passive income as the music is streamed or played.

d. Film and TV Royalties

Fractional ownership in box office hits, TV shows, or streaming content provides a steady income stream from royalties.

e. Sports Facilities

Golf courses, tennis clubs, and sports academies offer fractional ownership opportunities, with investors earning income from memberships and events.

v. Collectibles

Here are a list of collectible items that can be fractionalised:

a. Fine Art

Masterpieces, contemporary art, and limited editions can be owned fractionally, allowing investors to diversify their portfolios with valuable and appreciating assets.

A fractionally owned wine cellar with premium wines.

b. Wine Collections

Rare wines, vintage bottles, and wine futures can be owned fractionally, offering both enjoyment and potential appreciation in value.

c. Antiques

Furniture, historical artefacts, and rare books can be co-owned, providing a unique investment opportunity in the collectibles market.

d. Coins and Stamps

Rare coins, historical stamps, and limited editions offer fractional ownership opportunities in highly collectible and often appreciating assets.

e. Classic Cars

Iconic models, restored vehicles, and rare finds can be owned fractionally, allowing investors to participate in the classic car market without the full cost burden.

4. How Fractional Real Estate Investing Works

As aforesaid, fractional real estate investing allows multiple investors to co-own a property, sharing the costs, risks, and rewards. Here’s how it works:

i. Pooling Resources

Investors pool their funds to purchase a property, with each investor owning a fractional share based on their contribution.

ii. Ownership Structure

The property is typically owned by a legal entity, such as a Limited Liability Partnership (LLP) or a Private Limited (Pvt. Ltd.) company, with investors holding shares in the entity.

Fact: WiseX’s SPVs are structured as Private Limited (Pvt. Ltd.) companies, providing a robust and secure ownership framework for investors.

iii. Income Generation

The property generates rental income, which is distributed among investors in proportion to their ownership share. Investors also benefit from any capital appreciation when the property is sold.

iv. Exit Strategy

Investors can sell their shares through a secondary market or wait for the property to be sold, with the proceeds distributed among the co-owners.

v. Data on Returns

Fractional real estate investments in India have historically provided annual returns of 7-10% from rental income and 4-8% capital appreciation, though actual returns can vary based on market conditions and the quality of the property.

5. Difference between Real Estate Fractional Ownership, REITs and SM REITs

While fractional ownership in real estate, Real Estate Investment Trusts (REITs), and SM REITs offer ways to invest in real estate, they differ in structure and operation:

Features	Fractional Ownership (Real Estate)	REITs	SM REITs
Property Type	Typically preferred for Commercial Real Estate	Mix of Residential and Commercial Properties	Both allowed.
Investment Approach	Focused approach on a specific property	Owns multiple properties	Focused approach on a specific property
Minimum Investor Ticket Size	₹25 Lacs amongst reputed platforms	₹300	₹10 Lakhs
Underlying Assets	Specific property	Portfolio of multiple commercial and/or residential properties	Specific property
Regulations	Companies Act	Real Estate Investment Trusts Regulations 2014	SM REIT(s) Chapter introduced in the REIT(s) act in March, 2024. Existing Fractional Ownership Platforms (FOP) to migrate here.
Offer Size	No such limit. Typically FOPs are offering properties ranging from ₹30-100 Cr	₹500 Cr or above	Between ₹50-500 Cr
Framework Popularity	Popular since 2020’s	1st REIT got listed in 2019	Only a few regulated trusts operate since the introduction of the regulations.
Returns	Fixed rental income plus expected capital appreciation	The regulations emphasise consistent income distribution but do not specifically guarantee returns through capital appreciation	Fixed rental income plus expected capital appreciation
Assets’ Development Requirements	Investments can be made in properties at any stage of development.	Minimum of 80% of the value of the REIT’s assets must be invested in completed and rent-yielding properties	SM REITs to invest 95% of their investments in rent-yielding developed properties

6. Legal Framework and Regulations

The legal framework for fractional ownership in India is evolving, with key regulations covering the following areas:

Real Estate (Regulation and Development) Act, 2016 (RERA): Ensures transparency and protects investors’ interests in real estate transactions, including fractional ownership.
SEBI Regulations: The Securities and Exchange Board of India (SEBI) regulates platforms offering fractional ownership, ensuring compliance with securities laws. The introduction of Small and Medium REITs (SM REITs) in March 2024 is an amendment to the existing REIT regulations. This amendment focuses on fractional ownership in assets valued between ₹50 crore and ₹500 crore. Additionally, under these regulations, 95% of all assets under management must be invested in revenue-generating properties. Learn more about the framework of SM REITs by reading this document, which answers frequently asked questions about SM REITs.
Company Law: Legal entities like SPVs (LLPs or Pvt Ltd) are used to structure fractional ownership, governed by the Companies Act, 2013.
Taxation: Income from fractional ownership is taxed as per the Income Tax Act, 1961, with specific provisions for rental income, capital gains, and dividend distribution.

7. Benefits of Fractional Real Estate Investment

As an alternative investment opportunity, fractional ownership offers several benefits:

i. Affordability

Lower Capital Requirement: Allows investors to participate in high-value real estate without needing to commit large sums of money.
Access to Premium Assets: Provides access to high-end properties that might be otherwise out of reach for individual investors.

ii. Diversification

Spread Risk: By investing in fractions of multiple properties, investors can reduce the risk associated with any single property.
Asset Variety: Offers opportunities to invest in different types of real estate, such as commercial, residential, and mixed-use developments.

iii. Income Generation

Rental Income: Investors earn a share of the rental income proportional to their ownership stake, providing a steady income stream. Notably, the rental income from commercial properties is 3-4 times higher than residential rental income and also higher than most bank fixed deposits (FDs).
Long-Term Capital Appreciation: There is potential for property value appreciation over time, leading to capital gains upon sale.

iv. Professional Management

Experienced Managers: Properties are managed by professionals, ensuring optimal operation and maintenance, which can enhance returns.
Hands-Off Investment: Investors do not have to deal with day-to-day property management, reducing the hassle of direct ownership.

v. Capital Appreciation

Market Growth: As real estate markets grow, the value of properties and, consequently, fractional shares can increase, offering significant capital appreciation potential.

vi. Liquidity Options

Secondary Market: Some platforms offer secondary markets where investors can sell their shares, providing liquidity even in an otherwise illiquid asset class.

8. Risks and Considerations

Here are a few factors for you to consider prior to diversifying your investment portfolio with fractional ownership opportunities:

i. Market Risk

Property Value Fluctuations: Real estate markets can be volatile, and property values may decrease, impacting the value of your investment.
Economic Factors: Broader economic conditions, such as inflation, interest rates, and economic downturns, can affect real estate values and rental income.

ii. Liquidity Risk

Difficulty in Selling Shares: Fractional shares may be harder to sell, especially if there is no active secondary market or during market downturns.
Long-Term Commitment: Investors may be locked into an investment for a significant period, limiting access to their capital.

iii. Management Risk

Dependence on Management Quality: The success of the investment heavily depends on the property management team. Poor management can lead to lower returns and property value depreciation.

iv. Management Fees

Ongoing management and maintenance fees can eat into profits, especially if the property underperforms.

v. Regulatory Risk

Changing Regulations: Real estate and investment regulations can change, potentially affecting the profitability and legality of fractional ownership structures.
Compliance Costs: Ensuring compliance with local laws and regulations can add to the costs and complexity of managing fractional ownership.

vi. Co-Ownership Conflicts

Disagreements Among Owners: Conflicts between co-owners regarding property management, selling decisions, or other issues can complicate the investment. However, the voting rights granted to each investor ensure that decisions, including selling the property, are made based on a 75% majority. This democratic process allows for fair resolution of disputes and empowers investors to make collective decisions efficiently.
Decision-Making Delays: Collective decision-making processes can be slow, leading to missed opportunities or delayed actions. Nonetheless, the structured voting mechanism helps streamline these processes, ensuring that the majority’s preference guides actions and mitigates prolonged indecision.

9. Tips for First-Time Investors

Here are a few actionables tips for first-time investors:

i. Research Thoroughly

Understand the Property: Investigate the property’s location, market conditions, and potential for rental income and appreciation.
Platform Credibility: Choose a reputable fractional ownership platform with a strong track record and transparent operations.
Legal Structure: Ensure you understand the ownership structure, your rights, and any legal obligations involved.

ii. Start Small

Test the Waters: Begin with a smaller investment to gain experience and understanding of how fractional ownership works before committing larger amounts.
Learn the Process: Use your initial investment as a learning opportunity to understand the mechanics of fractional ownership, including management fees, income distribution, and exit strategies.

iii. Diversify

Spread Investments: Diversify your investments across different properties or asset classes to reduce risk and improve potential returns.
Balance Portfolio: Consider balancing your portfolio with other types of investments (e.g., stocks, bonds) to mitigate risks associated with real estate.

iv. Understand the Legalities

Review Contracts: Carefully read and understand all contracts and agreements, including details about management fees, income distribution, and exit options.
Seek Professional Advice: Consult with a financial advisor or legal professional to ensure you fully understand the implications of your investment.

Investors monitoring performance of their fractional ownership investments using their investor dashboard.

v. Monitor Performance

Regular Reviews: Regularly check the performance of your investment, including rental income, property management efficiency, and market conditions.
Stay Informed: Keep abreast of market trends and any changes in regulations that could impact your investment.

vi. Plan Your Exit Strategy

Understand Exit Options: Familiarise yourself with the process and options for selling your fractional share, including any secondary market opportunities that may be available.
Long-Term Perspective: While it’s important to have a long-term investment horizon, it’s also crucial to be aware of the potential challenges of exiting early. However, having a well-thought-out exit strategy can help you navigate these challenges more effectively.

Learn more: How to Plan Commercial Property Investment?

10. Frequently Asked Questions

Here are answers to some of the most frequently asked questions:

Q.1. What is fractional ownership meaning?

Fractional ownership is a method of owning a percentage or “fraction” of an asset rather than owning it outright. This model is common in high-value assets like real estate, where multiple investors pool their resources to purchase a property. Each investor holds a fractional share of the asset, entitling them to a proportionate share of the income generated by the property and any capital appreciation. Fractional ownership offers an affordable way to invest in expensive assets while spreading the risks and responsibilities among multiple owners.

Q.2. How do I choose a reliable fractional ownership platform in India?

To choose a reliable fractional ownership platform in India, consider the following factors:

Regulation and Licensing: Ensure the platform is registered with appropriate regulatory bodies, ensuring it operates within the legal framework.
Transparency: Look for platforms that provide clear information on fees, property details, ownership structure, and the rights of investors.
Track Record: Research the platform’s history, including past projects, investor reviews, and overall reputation in the market.
Management Team: Evaluate the experience and credibility of the platform’s management team in real estate and investment management.
Legal Structure: Understand the legal structure of ownership and how the platform handles investor rights and obligations.

Q.3. Is fractional real estate a good investment?

Fractional real estate can be a good investment for those looking to diversify their portfolio, gain exposure to high-value assets, and generate passive income. It offers the benefits of real estate investment without the need for a large capital outlay. However, like any investment, it comes with risks, including market fluctuations, liquidity concerns, and potential management issues. Investors should thoroughly research and consider their risk tolerance before investing.

Q.4. How is the re-sale of fractional ownership handled?

The resale of fractional ownership can be complex and varies depending on the platform and asset. Some platforms offer a secondary market where investors can list their fractional shares for sale to other investors. However, liquidity can be a challenge, as the market for fractional shares may not be as active as for whole properties, potentially leading to delays in selling or a lower-than-expected sale price. At WiseX, investors wishing to exit their investment early are provided with assistance in finding buyers through the secondary market at no additional cost.

Q.5. Can fractional ownership apply to any purchase?

Fractional ownership is most commonly applied to high-value assets like real estate, luxury goods (e.g., yachts, private jets), and sometimes even artworks. While the concept can theoretically be applied to any asset, it is most effective when used for items that are expensive and typically beyond the reach of a single buyer. The key is that the asset must be divisible in a way that each fraction holds value and can be effectively managed and shared among owners.

Q.6. What responsibilities do you have as a fractional owner?

As a fractional owner, your responsibilities typically include:

Financial Contributions: Paying your share of maintenance fees, taxes, insurance, and other ongoing costs associated with the asset.
Decision Making: Participating in key decisions related to the management or sale of the asset, often in coordination with other co-owners.
Adherence to Agreements: Following the terms of the ownership agreement, which may include rules around the use, sale, or leasing of the asset.
Property Management: Depending on the arrangement, you may have a say in how the property is managed, or this may be handled entirely by a third-party manager.

Q.7. How does fractional ownership work for WiseX?

At WiseX, fractional ownership allows investors to purchase shares in high-value assets, such as premium commercial real estate, at a fraction of the full cost. These identified properties are pre-leased to blue-chip companies, ensuring stable and reliable rental income. Investors pool their funds to acquire the property, and each investor owns a proportional share based on their investment. WiseX handles the management of the property, including maintenance, tenant management, and income distribution. Investors earn returns from rental income and potential property appreciation, with the flexibility to sell their shares through WiseX’s platform or in a secondary market.

Q.8. Is fractional ownership safe?

Fractional ownership can be safe if the investment is made through a reputable and transparent platform that adheres to legal and regulatory standards. However, it is important to recognize the inherent risks, including market volatility, liquidity challenges, and management quality. Conducting thorough due diligence on the platform, understanding the legal structure, and being aware of potential risks can help mitigate safety concerns.

Q.9. Can I sell my fractional ownership?

Yes, you can sell your fractional ownership, but the process and ease of sale depend on the platform and the asset. Some platforms offer a secondary market where you can list your shares for sale to other investors. Alternatively, you may need to find a buyer on your own or wait for the platform to facilitate a sale. Liquidity can be an issue, and the time it takes to sell your shares may vary.

Bottom Line

Now that you are familiar with the intricacies associated with fractional ownership investments, here are some additional resources that will help you in diversifying your portfolio:

Take a look at WiseX’s commercial real estate fractional ownership opportunities.
Book a call with a dedicated investment manager to learn more about the opportunities available.

Explore our articles on numerous subjects related to alternative investments.

A Comprehensive Guide to Planning Commercial Property Investment

July 19, 2024

Mohit Bali

Alternative Investments, Commercial Real Estate, Fractional Ownership

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Real estate investors assessing the commercial real estate property

10 minutes read

Discover the essentials of investing in commercial properties. Learn the types, benefits, risks, and steps involved in making informed decisions for a profitable investment.

Are you looking to diversify your investment portfolio and are in the market for a commercial property investment? According to a recent report by Mordor intelligence, ”The India Commercial Real Estate Market size is estimated at USD 40.71 billion in 2024, and is expected to reach USD 106.05 billion by 2029, growing at a CAGR of 21.10% during the forecast period (2024-2029).”

This comprehensive guide has been written to address all potential queries an investor may have regarding investing in commercial real estate – pros and cons, due diligence, steps to investing in commercial real estate and much more.

Contents:

1. What are Commercial Properties?

Commercial properties are real estate assets used exclusively for business purposes. These properties generate income through leasing or renting out space to various types of businesses. The different types of commercial properties include:

i. Workspaces

Workspaces, or office buildings, are designed for businesses to conduct their operations. They range from single-tenant buildings to multi-tenant high-rises. Office spaces are often categorised into Class A, B, or C based on their quality, location, and amenities.
Wish to invest in high rental commercial real estate? Sign up and take a look at the investment opportunities currently being offered.

ii. Warehouses and Manufacturing Plants

Warehouses are large storage spaces used by businesses to store goods and inventory. Manufacturing plants are industrial facilities where goods are produced. These properties are essential for logistics and supply chain operations.

iii. Malls and Shopping Centers

These are retail complexes where multiple stores and businesses operate under one roof. They include large shopping malls, strip malls, and retail parks. They attract a high volume of foot traffic and are located in prime areas.

iv. Production Facilities

These are specialised properties used for the mass production of goods. They include factories and assembly plants, which are equipped with heavy machinery and equipment necessary for manufacturing processes.

v. Lodging and Dining Establishments

This category includes hotels, motels, restaurants, and cafes. These properties cater to travellers and diners, providing lodging and food services. They are typically located in commercial districts and tourist areas.

vi. Medical Facilities

Medical facilities include hospitals, clinics, and medical offices. These properties are designed to meet the specific needs of healthcare providers, offering spaces for patient care, surgeries, and consultations.

vii. Stores

Standalone retail outlets or small shops fall under this category. They can be anything from a single store in a local neighbourhood to a chain store in a high-traffic area.

viii. Multi-purpose Properties

These properties serve more than one commercial purpose. Examples include mixed-use developments that combine office spaces, retail outlets, and residential units in one building. Multi-purpose properties are versatile and cater to diverse business needs.

2. Why Should You Invest In Commercial Properties?

Investing in commercial properties offers numerous advantages, making it an attractive option for investors. Here are the key reasons:

i. Thriving Commercial Industry

According to a recent report by Apeejay Real Estate, “The commercial real estate market in India is expected to grow by 7-8% in 2024, reaching a historic peak”. The commercial real estate sector is continuously growing, driven by increasing demand for office spaces, retail outlets, and industrial facilities. As businesses expand, the need for commercial properties rises, ensuring a robust market.

ii. Excellent Rental Returns

Commercial properties typically offer higher rental yields compared to residential properties. Long-term leases with businesses provide stable and substantial passive income, making it a lucrative investment option. According to our primary research, commercial real estate offers nearly 3X more rental yield than residential real estate.

iii. Steady and High Revenue Source

Commercial properties generate a consistent revenue stream due to long-term leases and reliable tenants. Businesses often sign multi-year leases, ensuring a steady income for property owners.

iv. Simple Management

Professional property management services can handle the day-to-day operations, maintenance, and tenant relations, reducing the burden on investors. This allows for efficient and hassle-free management.

v. Protection Against Inflation

Commercial property leases often include clauses that adjust rents according to inflation rates. This ensures that the rental income keeps pace with inflation, preserving the purchasing power of the investor’s returns.

vi. Investment Diversification

Adding commercial properties to an investment portfolio diversifies risk. Real estate often behaves differently from stocks and bonds, providing a hedge against market volatility and economic downturns.

vii. Top-tier Infrastructure

Commercial properties are usually located in prime areas with excellent infrastructure, including transportation links, utilities, and amenities. This enhances the property’s value and attractiveness to tenants.

viii. Consistent Returns

Commercial real estate investments tend to offer more predictable and consistent returns compared to other investment options. The stability of rental income from businesses contributes to this consistency.

ix. Value Growth

Commercial properties often appreciate in value over time, especially those located in prime areas with high demand. This appreciation can lead to substantial capital gains when the property is sold, further boosting the investor’s returns.

3. Potential Drawbacks of Investing in Commercial Properties

Investing in commercial properties offers numerous benefits, but it is not without its drawbacks. Potential investors must be aware of these challenges to make informed decisions. Below are some disadvantages associated with investing in commercial properties:

i. Demands Extensive Research

Investing in commercial properties requires thorough and comprehensive research. Prospective investors need to analyse market trends, property values, and economic indicators to identify profitable opportunities. Unlike residential real estate, where market conditions are relatively straightforward, commercial real estate markets are complex and vary significantly by location and sector. Failure to conduct adequate research can lead to poor investment choices and financial losses. Keeping abreast of market developments by reading reports and research articles from reputable sources such as JLL, Colliers, and Cushman and Wakefield would be the best way to make an informed investment.

ii. Higher Capital Needed

Commercial real estate investments generally require a substantial amount of capital. The cost of purchasing commercial properties is significantly higher than residential properties, often necessitating large down payments and significant financial reserves. Additionally, ongoing expenses, such as maintenance, property management, and taxes, can be considerable. This high capital requirement can be a barrier to entry for many investors, limiting access to potentially lucrative opportunities.

However, with SEBI’s new regulations issued for Small and medium real estate investment trusts (SM Reits), investing in real estate has become quite economical for the retail investors with investments amounts as low as 25 lakhs.

iii. Costly Loans

Securing financing for commercial properties can be more challenging and expensive compared to residential properties. Commercial real estate loans often come with higher interest rates and stricter lending criteria. Lenders typically require detailed business plans and proof of stable income streams to approve loans.

iv. Economic Uncertainty

Commercial real estate investments are particularly susceptible to economic fluctuations. Economic downturns can lead to decreased demand for commercial spaces, resulting in lower occupancy rates and reduced rental income. During recessions, businesses may downsize or close, further impacting the profitability of commercial properties. Investors must be prepared for the potential volatility in rental income and property values, which can affect their overall return on investment.

v. Tenant Acquisition Challenges

Attracting and retaining tenants in commercial properties can be challenging. Unlike residential properties, where tenants are typically individuals or families, commercial properties rely on businesses, which may have specific requirements and expectations. Securing long-term, reliable tenants is crucial for maintaining steady cash flow. High vacancy rates can significantly impact profitability, as commercial properties may remain unoccupied for extended periods, leading to financial strain on the investor.

4. Things to Keep In Mind Before Investing in a Commercial Property

Investing in commercial property requires careful consideration of several factors to ensure a profitable and sustainable investment. Here are some key aspects to keep in mind:

i. Site Location

The location of a commercial property is paramount to its success. A prime location can attract high-quality tenants and ensure a steady stream of rental income. Investors should evaluate the property’s proximity to major transportation hubs, accessibility, visibility, and the surrounding area’s economic activity. Locations in thriving business districts or areas with planned future developments often provide better returns. Additionally, understanding local zoning laws and regulations is crucial to ensure the intended use of the property is permissible.

A developed commercial complex with multiple offices.

ii. Sufficient Amenities

The availability of amenities can significantly influence the attractiveness of a commercial property to potential tenants. Essential amenities may include parking facilities, security systems, and access to public transportation. Depending on the type of commercial property, additional amenities such as conference rooms, high-speed internet, and fitness centres can add value. Investors should consider the needs of their target tenants and ensure the property offers amenities that meet those requirements, enhancing tenant satisfaction and retention.

iii. Lease Arrangement

The structure and terms of lease agreements are critical components of commercial property investment. Investors should carefully review the lease duration, rental rates, and escalation clauses. Long-term leases with reliable tenants provide stability and predictable income, whereas shorter leases might offer flexibility but come with higher risk. It’s also important to understand the tenant’s business model and financial health to assess their ability to meet lease obligations. Additionally, including clauses that allow for rent adjustments based on market conditions can protect against inflation and economic fluctuations.

iv. Expansion Potential

Considering the future expansion potential of a commercial property can add significant value to the investment. Investors should evaluate whether the property has room for physical expansion or if there are possibilities for increasing rental income through renovations or improvements. Properties with adaptable layouts that can accommodate various business types offer greater flexibility and resilience to market changes. Evaluating the long-term growth prospects of the location and the property itself can provide insights into future profitability and the ability to attract diverse tenants.

5. How Does Commercial Real Estate Investments Perform Against Other Investment Assets

Metrics	Commercial Real Estate	Residential Real Estate	SIPs/Mutual Funds	Bonds	Gold
Returns	High	Moderate	Varies	Low	Varies
Risk	Moderate	Low	Varies	Low	Moderate
Volatility	Moderate	Low	High	Low	High
Ticket Size	High	Moderate	Low	Low	Low
Liquidity	Moderate	High	High	High	High

Learn more: How Is Fractional Ownership Better Than Stocks?

6. Steps to Invest in Commercial Real Estate

Investing in commercial real estate is a structured process that involves several critical steps. Here’s a comprehensive guide to help you navigate the process effectively:

i. Establish Your Investment Objective and Plan

The first step in investing in commercial real estate is to define your investment objectives. Determine whether you are seeking short-term gains through property flipping, long-term income through rental yields, or value appreciation over time. Establishing clear objectives will guide your investment strategy and decision-making process. Develop a detailed plan outlining your budget, risk tolerance, target property types, and expected returns.

ii. Investigate Potential Markets and Properties

Once your objectives are set, research potential markets and properties. Analyse market trends, economic indicators, and demographic data to identify regions with growth potential. Consider factors such as employment rates, population growth, and infrastructure development. Investigate specific properties that align with your investment criteria, evaluating their location, condition, tenant mix, and income potential. Engaging with local real estate agents and attending industry events can provide valuable insights and opportunities.

iii. Secure Suitable Financing

Securing financing is a critical step in the investment process. Explore various financing options, including traditional bank loans, commercial mortgages, and private lenders. Compare interest rates, loan terms, and eligibility criteria to find the most suitable financing solution for your investment. Prepare a comprehensive business plan and financial projections to present to potential lenders. Ensure that you have sufficient capital for down payments, closing costs, and initial expenses.

iv. Propose and Negotiate Conditions

Once you identify a promising property, submit a formal offer to the seller. This proposal should include the purchase price, proposed terms, and contingencies. Negotiation is a crucial aspect of this step, as it can significantly impact the final agreement. Work with a real estate attorney to ensure that the contract terms protect your interests and address potential risks. Effective negotiation can lead to favourable terms, such as reduced purchase prices or additional concessions.

v. Perform Due Diligence

Conducting due diligence is essential to verify the property’s condition and financial viability. This process involves inspecting the property, reviewing financial statements, and assessing legal documents. Hire professionals such as property inspectors, appraisers, and environmental consultants to evaluate the property’s physical and environmental status. Analyse lease agreements, tenant history, and operating expenses to ensure the property meets your investment criteria and expectations.

vi. Finalise the Purchase

After completing due diligence and resolving any issues, proceed to finalize the purchase. This step involves signing the purchase agreement, securing financing, and transferring funds. Work with a real estate attorney to ensure all legal and contractual obligations are met. Conduct a final walkthrough of the property to confirm its condition. Once all documents are signed and funds are transferred, the property ownership is officially transferred to you.

vii. Oversee the Investment

Managing and overseeing your commercial real estate investment is crucial for achieving long-term success. Develop a comprehensive property management plan to ensure smooth operations and tenant satisfaction. This plan should include regular maintenance, rent collection, and tenant communication strategies. Monitor market trends and property performance to make informed decisions about lease renewals, rent adjustments, and potential property improvements. Engaging a professional property management company can help streamline operations and enhance the property’s value.

7. Investing in Commercial Real Estate with WiseX

WiseX simplifies the process of investing in commercial real estate by addressing common pain points such as extensive research by conducting thorough due diligence, high capital requirements by offering a relatively economical ticket size, and tenant acquisition challenges by ensuring the lease agreement is ironclad. Our platform offers a curated selection of high-quality properties, accessible investment amounts, and comprehensive due diligence reports. Additionally, WiseX provides professional property management services and a seamless investment process, ensuring a hassle-free experience for investors.

Step 1: Property Selection

Begin by browsing through a diverse range of properties across various locations to identify one that aligns with your investment strategy. Evaluate each property based on factors such as location, market potential, and suitability for your investment goals.

Step 2: Review Investment Details

Once you have selected a property, review the available details, including its valuation, available shares, and price per share. Determine your investment amount based on your budget and risk tolerance, ensuring it aligns with your overall investment plan.

Step 3: Complete KYC and Confirm Investment

Complete the Know Your Customer (KYC) documentation online to verify your identity. Confirm your investment amount with the assistance of your dedicated investment manager, who will guide you through the process and address any queries you may have.

Step 4: Sign EOI and Deposit Initial Investment

After confirming your investment, sign an Expression of Interest (EOI) document. Deposit 5% of your investment amount into an Escrow account, which secures your investment opportunity and demonstrates your commitment.

Step 5: Complete the Investment Procedure

When the investment opportunity reaches full commitment, you will be notified to submit the remaining 95% of your investment amount. This step completes your financial commitment to the investment post which your rental income will begin to accrue.

Step 6: Documentation and Returns

Upon completing these steps, WiseX will initiate the documentation process to finalise your investment. Once your investment is successfully finalised, you will begin receiving returns on a monthly basis, in accordance with the terms of the investment agreement.

Learn more: Advantages of Investing With WiseX

8. Bottom Line

Now that you are aware of the benefits and drawbacks associated with commercial property investments, here are some additional resources that will help you in diversifying your portfolio:

Take a look at WiseX’s commercial real estate fractional ownership opportunities.
Book a call with a dedicated investment manager to learn more about the opportunities available.
Explore our articles on numerous subjects related to alternative investments.

What Are The Contemporary Asset Classes to Invest in 2024?

January 25, 2024

Mohit Bali

Personal Finance and Investments

3 minutes read

In 2024, the investment scene is transforming, with India’s economic prospects shining brighter than the global average. Anticipated to grow at a rate of 6.5-7%, thanks to government policies aimed at transparency and stability, India is becoming an attractive investment hub. This promising economic backdrop calls for investors to look beyond traditional safe havens like fixed deposits and to consider a broader array of innovative and modern assets. Such a proactive approach aligns with the nation’s robust economic trajectory and opens doors to potential growth and stability in the realm of investment.

Real Estate Revolution

India’s real estate sector, evolving into a significant force in the global market, is increasingly focusing on more accessible investment forms. This shift is highlighted by the introduction of SM REITs (formerly known as fractional ownership of Commercial real estate) by SEBI, which broadens the scope of commercial real estate investment. India’s contribution to the $1.2 trillion global real estate investment is notable, particularly with the Asia Pacific region, including India, accounting for 35% of this, as highlighted in Colliers’ 2024 Global Investment Outlook.

The growth trends in specific real estate sectors further underscore this development. The office sector in India saw a 1.6X year-on-year increase in investment inflows during Jan-September 2023, reaching USD 2.9 billion. This growth, along with the expansion in the industrial and warehousing sectors, reflects a robust and broad-based market expansion.

Additionally, the surge in new real estate launches in India’s top seven cities, which accounted for 41% of the market in the first quarter of 2023, demonstrates the sector’s dynamic growth. This data, sourced from Knight Frank India’s “India Real Estate Report Q1 2023,” highlights the rising trend in development activities.

These indicators point towards a strong and sustained growth trajectory for India’s real estate sector, anticipated to continue into 2024 and beyond, driven by innovative investment structures and diverse development projects.

The Surge in Indian Equities

India’s stock market is now welcoming a wider spectrum of investors. The increase in demat accounts to 12.7 crore, as per SEBI’s data until August 2023, signals a more inclusive investment environment. In 2023, India stood out as the global leader in IPOs, particularly in Q3, with a remarkable 376% growth in funds raised, totaling $1,770 million. This bustling activity, along with investors’ keen interest in subscribing to IPOs for initial gains, indicates a significant shift towards diverse investment portfolios, despite inherent equity market risks like economic downturns and geopolitical events.

Expansion with Alternative Investments

Investors are broadening their portfolios with alternative investments, reflecting the growth and maturity of India’s financial markets. Ventures like startups, natural resources, and cryptocurrencies, particularly Bitcoin’s rise again since November 2022, showcase the increasing preference for varied investment opportunities beyond traditional stocks and FDs. Initiatives like “Make in India” are attracting global funds, while changes in regulations make investing more open to the public. There’s a trend towards innovative financing methods, such as loans that can convert into shares, and the alternative investment funds sector is growing, providing more choices for investment. Advances in financial technology and strong investment regulations are also encouraging more people to explore these non-traditional investment options.

Strategize Investments by Keeping a Balanced Approach

In this changing investment landscape, a balanced approach is essential. Leveraging the growth potential of real estate, especially through innovative options like SM REITs, alongside the dynamic equities market, forms the core of this strategy. Incorporating alternative investments enhances this blend, ensuring a well-rounded portfolio that maximizes returns while managing risks effectively.

As we delve into 2024, the Indian investment scene is ripe with opportunities, ranging from the burgeoning real estate sector to the accessible equities market and the diverse world of alternative investments. Understanding and strategically leveraging these options will be key for investors looking to capitalize on India’s economic growth and the global investment shift.

Navigating Personal Finance: Thumb Rules for a Secure Future

January 25, 2024

Mohit Bali

Personal Finance and Investments

2 minutes read

The journey to financial stability is akin to navigating a complex labyrinth. At WiseX, we understand the significance of having a reliable compass to guide you through the maze of personal finance. Thumb rules in finance are not absolute laws; instead, they are beacons that provide direction. These strategic guideposts have been tried and tested, serving as cornerstones for building a robust financial future. Today, we share with you pivotal thumb rules that can illuminate your path toward financial planning.

Rule of 72: Doubling Down on Investments

The Rule of 72 is a swift and simple way to gauge the growth of your investments. Divide 72 by the annual rate of return to estimate how many years it will take for your money to double. For example, at a 9% interest rate, your investment will likely double in eight years (72 ÷ 9 = 8). It’s a preliminary compass point for WiseX investors to align their compass with their financial horizon.

100-Age Rule: Balancing the Investment Scales

Determining your investment in stocks is made easier with the 100-Age Rule. Deduct your age from 100, and that’s the percentage of your portfolio that could be allocated to stocks. If you’re 40, for example, 60% of your investments might be in equities. This rule naturally adjusts as you age, shifting towards a more conservative stance as you approach retirement.

50/30/20 Rule: Structuring Your Spending

A sustainable budget is the bedrock of financial stability. The 50/30/20 Rule suggests an allocation of your after-tax income: 50% for necessities, 30% for desires, and 20% for savings and debt repayment. This balanced approach ensures essential expenses are managed while fostering future financial growth.

6X Emergency Rule: Building a Safety Net

Life is unpredictable, but your financial response shouldn’t be. The 6X Emergency Rule recommends having an emergency fund worth six months of living expenses. This financial buffer can help you manage unforeseen circumstances without derailing your financial plans.

20X Insurance Rule: Securing Your Legacy

Life insurance is a fundamental pillar of financial planning. The 20X Insurance Rule suggests a coverage of 20 times your annual income, giving you confidence that your loved ones will be secure in any eventuality.

40% EMI Rule: Keeping Debt in Check

Debt management is critical in personal finance. The 40% EMI Rule advises that no more than 40% of your income should go towards EMIs, ensuring that debt doesn’t overwhelm your financial resources and future savings.

Retirement Rule – 25X Your Annual Expenses

Retirement planning is vital, and the 25X Rule offers a clear target: save 25 times your annual expenses before retiring. This strategy is predicated on a 4% safe withdrawal rate, ensuring that your nest egg sustains through your retirement years. Changes in interest rates may require adjustments to this rule, but it remains a solid benchmark.

1st Week of Investment: Prioritising Your Future

The 1st Week of Investment Rule emphasises immediate action. Invest at the start of each month to make your financial growth a priority from the get-go.

These thumb rules are the navigational stars in the vast sky of personal finance. They are starting points for WiseX investors seeking to transform their economic landscape. While these principles lay the groundwork, remember that personal finance is deeply personal. Use these rules to inform your decisions, but tailor them to fit your unique financial journey.

Are you ready to put these financial thumb rules into practice? Reach out to WiseX, and let’s tailor a personal finance plan that aligns with your aspirations. Your future is not just a dream; it’s a destination we can reach together.

The Meteoric Rise of Managed Leasing Office Spaces and WiseX’s Pioneering Role

January 25, 2024

Mohit Bali

Alternative Investments, WiseX Updates

2 minutes read

Post Pandemic, the Indian commercial real estate landscape has undergone a paradigm shift, with managed leasing office spaces, often referred to as flex office spaces, leading the way. The JLL Office Market Update for Q2 2023 throws light on this burgeoning sector, underscoring a notable 1.5x growth in seats leased from 2021 to H1 2023, touching a remarkable 1,31,700+ seats. Cities like Bengaluru, Pune, and Delhi NCR are at the forefront of this revolution, accounting for a substantial 68.1% combined seat take-up in H1 2023 alone.

This exponential growth has heralded an era of immense potential for managed leasing players, striving to meet the escalating demand. At the heart of this transformative journey stands WiseX. While we initially carved a niche for ourselves in the fractional ownership of commercial real estate, facilitating our investors to reap the benefits of commercial properties, we quickly identified the vast opportunity that the flex office space sector presented.

Having a keen eye for market trends, WiseX meticulously analysed the prospect of raising capital for managed leasing players via a unique mechanism – the lease rental discount (LRD) framework. This framework, an innovative brainchild of WiseX, is designed to provide investors with lucrative opportunities while ensuring all associated risks are collateralised and mitigated.

Our track record is a testament to our strategic prowess. WiseX has triumphantly funded six LRD opportunities to date. We’ve partnered with industry stalwarts like Skootr, Attic, and DevX, with each association scripting its success story. The highlight being our collaboration with Attic: while our inaugural Series-A opportunity with them was subscribed in 15 days, Series-B witnessed subscriptions in just 5 days. But the pinnacle of this partnership was the Series-C opportunity launched in September 2023, which astoundingly got fully subscribed in a mere 2 days! Not far behind was our October 2023 endeavour with DevX, their LRD Series-B opportunity, which was completely subscribed in an exceptional 2 working days.

As the realm of managed leasing office spaces continues its upward trajectory, WiseX is committed to staying ahead of the curve, curating pioneering opportunities for its investors and partners alike.

The Digital Revolution: Transforming Personal Finance

January 25, 2024

Mohit Bali

Alternative Investments

2 minutes read

Shifting Paradigms in Asset Building
As we navigate through the 21st century, the realm of personal finance has undergone a remarkable transformation, shifting from traditional means to digital platforms. The advent of financial technology, or fintech, has revolutionized the way we manage our finances, making it more accessible, efficient, and user-friendly than ever before. This digital evolution has enabled individuals to take control of their financial journey, plan their asset building meticulously, and improve their personal finances with unprecedented ease.

Online Banking and Financial Literacy at Your Fingertips
The integration of technology in personal finance is not just limited to asset management; it encompasses a wide array of services, including online banking and financial literacy. With the advent of Unified Payments Interface (UPI), transactions have become smoother and faster, eliminating the need to visit banks or ATMs. Everything you need to manage your finances is now just a click away, bringing a level of convenience that was previously unimaginable. This democratisation of financial services has empowered individuals, regardless of their financial background, to make informed decisions and achieve financial stability.

Empowering Investments: The Rise of Investment Apps
Platforms such as Zerodha and Groww have played a pivotal role in making traditional investment avenues like stocks and mutual funds more accessible to the average investor. These apps have been in the market for quite some time, and their evolution has significantly lowered the barriers to entry for investing. The user-friendly interfaces, educational resources, and simplified investment processes have encouraged more individuals to explore the potential of the finance industry, leading to a surge in participation and investment.

Diversifying Portfolios: Real Estate and Alternative Investing
While digital platforms have transformed traditional investment avenues, they have also paved the way for alternative investments. Platforms like AurumwiseX are leading the charge in democratizing access to capital-intensive industries such as real estate. By introducing fractional ownership of commercial real estate and structured debt opportunities backed by real estate, AurumwiseX is making real estate investment accessible to a broader audience. Additionally, the platform offers opportunities in Portfolio Management Services, allowing investors to dive into real estate sector-specific funds. What was once a playground for High Net Worth Individuals (HNIs) is now open for everyone, creating a more inclusive financial ecosystem.

The integration of technology in personal finance has not only streamlined the process of asset building and management but has also opened doors to new opportunities and investment avenues. From online banking and financial literacy to investing in stocks, mutual funds, and real estate, technology has made personal finance more accessible, efficient, and inclusive. As we continue to embrace this digital revolution, the potential for growth and prosperity in the World of personal finance looks brighter than ever. The role of technology in personal finance is not just about convenience; it is about empowerment, and it is transforming the way we manage our finances for the better.

Take the Next Step, Invest in Real Estate-Backed Assets
Are you ready to diversify your portfolio and tap into the potential of real estate investing? Look no further! Visit AurumwiseX today to explore a variety of real estate-backed investment opportunities tailored to suit your financial goals. Empower your financial future and start investing with confidence!

Listed and Unlisted Securities

January 25, 2024

Mohit Bali

Alternative Investments, Personal Finance and Investments, WiseX Updates

1 Comment

3 minutes read

In the diverse world of investments, understanding the landscape is crucial for navigating it successfully. At WiseX, India’s preeminent neo-realty investment platform, we believe in equipping our investors with key insights to make informed decisions. A fundamental aspect of this knowledge is distinguishing between listed and unlisted securities.
This blog sheds light on these two categories, helping you understand their differences, advantages, and implications for your investment strategy.

Understanding Listed Securities
Listed securities are financial instruments traded on formal stock exchanges like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). They encompass a range of products, including stocks, bonds, and derivatives.

Advantages of Listed Securities
Regulatory Oversight: Listed securities are regulated, offering investors a degree of protection.
Liquidity: Due to their availability on public exchanges, they are easier to buy and sell.
Transparency: Prices of listed securities are available in real-time, ensuring transparency.

Challenges with Listed Securities
Market Volatility: These securities are often subject to market fluctuations.
Global Influence: External factors like geopolitical events can impact prices.

Exploring Unlisted Securities
Unlisted securities, in contrast, are not traded on public stock exchanges. These include private company stocks, government securities not traded on the market, and other financial instruments.

Advantages of Unlisted Securities
Potential for High Returns: They often offer the potential for higher returns compared to their listed counterparts.
Less Market Impact: Less susceptible to market volatility and sentiment.

Challenges with Unlisted Securities

Lack of Liquidity: Selling these securities can be challenging due to the absence of a ready market.
Limited Information: There’s often less publicly available information, making valuation difficult.

Why the Distinction Matters?
Understanding the distinction between listed and unlisted securities is pivotal for investors. It affects portfolio diversification, risk assessment, and aligning investments with personal financial goals. For instance, listed securities can provide stability and ease of access, while unlisted securities can offer unique growth opportunities, albeit with higher risk.

Listed vs. Unlisted: A Comparative Insight
A comparative analysis of these two types of securities reveals varying risk profiles, return potentials, and suitability for different investor types. While listed securities offer a safer bet for conservative investors, unlisted securities can be attractive for those willing to take on more risk for potentially higher returns.

Listed Securities	Factors	Unlisted Securities
Publicly traded companies, ETFs, REITs	Issuer Types	Private companies, Start-ups
Subject to market conditions but generally stable due to higher regulatory standards	Credit Risk	Higher due to less regulatory scrutiny and transparency
High due to trading on public stock exchanges	Liquidity	Limited as they are not traded on public exchanges
Active, with price transparency due to real-time market data	Secondary Market	Less active with pricing that can be opaque or determined through negotiation
Regulatory frameworks like SEBI in India ensure compliance with stringent rules	Regulatory Oversight	Less stringent, subject to private agreements and less formal regulation
Tax treatment as per standard capital gains tax for securities	Tax Considerations	May have different tax implications based on investment duration and vehicle
Stocks, derivatives, bonds, etc., across various sectors	Investment Opportunities	Equity stakes in private ventures, debt instruments with negotiated terms
Brokerage fees, transaction costs, and taxes may apply	Trading Costs	May involve valuation costs, but typically lower transaction fees since they are not traded on exchanges

Aligning Your Investment Strategy
Choosing the right mix of listed and unlisted securities depends on your investment goals, risk tolerance, and time horizon. WiseX can assist in crafting a personalized investment strategy that balances these elements, ensuring your portfolio aligns with your long-term financial aspirations

At WiseX, we understand that the investment world can be labyrinthine. Our aim is to provide clarity and guidance, helping you navigate the maze with confidence. Whether it’s listed or unlisted securities, our expertise and innovative platform are here to support your investment journey every step of the way.

Embark on your investment journey with WiseX. Explore a world where informed decision-making leads to fruitful investments. Connect with us today and take the first step towards realizing your financial dreams.

Author - Mohit Bali

How Should You Invest in Fractional Ownership?: A Step By Step Guide

Step 1 – Research the Concept of Fractional Ownership

What is Fractional Ownership?

Benefits of fractional ownership real estate investments

Risks of fractional ownership real estate investments

Types of Fractional Real Estate Investments

Step 2 – Evaluate Your Financial Position and Goals

Determine Your Investment Budget

Clarify Your Investment Goals

Step 3 – Choose the Right Fractional Ownership Platform

Step 4 – Select the Right Property

Property Type and Location

Evaluate Rental Income and Financial Projections

New Developments vs. Existing Properties

Step 5 – Legal Due Diligence and Documentation

Review the Ownership Structure

Ensure Clear Exit Strategies

Clarify Tax Implications

Step 6 – Manage Your Investment Post-Purchase

​​Tracking Your Investment Performance

FAQs

Q.1. How much money is required to invest in fractional ownership?

Q.2. Can I sell my fractional ownership shares easily?

Q.3. What taxes apply to fractional ownership income?

Q.4 How do I know if a fractional ownership platform is trustworthy?

Bottom Line

What are Small and Medium REITs (SM REITs)? An Investor-Centric Regulatory Framework

1. What are SM REITs (Small and Medium REITs)?

2. Investment Manager’s Responsibilities

3. Merchant Bankers’ Responsibilities and Obligations

4. Trustee’s Responsibilities

5. SM REIT Investment Benefits for the Unit Holder/Investor

i. Enhanced Transparency

ii. Investor Protection

iii. Strong Compliance and Accountability

iv. Dispute Resolution and Risk Management

v. Legal and Ethical Operations

vi. Penalties and Compensation

6. Potential Risks in Investing in SM REIT

7. Difference between Fractional Ownership and SM REITs

8. Frequently Asked Questions

Q.1. Can the Investment Manager launch multiple schemes under an SM REIT?

Q.2. Which definition of “SPV” (Special purpose Vehicle) is to be considered for the SM REITs regulations?

Q.3. Can multiple SPVs jointly own a single property?

Q.4 Where can you find the official SM REITs regulations?

9. Bottom Line

A Comprehensive Guide To Fractional Ownership

1. What is Fractional Ownership?

2. Evolution of Fractional Investing

3. Assets That Can Be Invested In Fractionally

i. Real Estate

a. Residential Properties

b. Commercial Properties

c. Vacation Properties

d. Farmland

e. Mixed-Use Developments

ii. Luxury Items

a. Yachts

b. Private Jets

c. Exotic Cars

d. Jewellery

e. Art Collections: Paintings, sculptures, digital art (NFTs)

iii. Business Ventures

a. Startups

b. Small Businesses

c. Franchises

d. Renewable Energy Projects

e. Film Productions

iv. Sports and Entertainment

a. Sports Teams

b. Event Venues

c. Music Royalties

d. Film and TV Royalties

e. Sports Facilities

v. Collectibles

a. Fine Art

b. Wine Collections

c. Antiques

d. Coins and Stamps

Tracking Your Investment Performance