Sonam Chandwani
The pall of gloom over the real estate industry on account of the COVID-19 pandemic has brought to light several unconventional methods being applied to keep the dreams of property buyers alive, while developers strive to stay afloat. A growing number of Indians are acquiring slices of rent-yielding residential and commercial properties in a way that is comparable to investing in the stocks of a company. Fractional real estate, as the concept is known, allows investors to buy, say, one per cent of a vacation home for a minimum amount and use it whenever they want, while earning rental income, too. While weekend properties are neither essential nor urgent, the outbreak has changed this perception. Such a realty ownership concept has arisen predominantly from the Work-From-Home (WFH) culture and the work-vacation culture, attracting NRIs and domestic buyers alike. Such a property acts like an asset, attracting a plethora of investors, in the end becoming a potential Special Purpose Vehicle-related investment. From the taxation standpoint, the fractional ownership of a property opens up such owners to a plethora of taxable liabilities, when comparing the yearly taxation related costs of such interests, prospective buyers or their counsel/advisors need to be sure of the usage arrangement, location, ownership size, basic amenities and other items.
A unicorn investment refers to a startup avenue/venture, occupying less than $1 billion of the industry share. Considering the fact that this sort of timeshare arrangement is a novel arena of investment for Indians, the value of such investment could possibly render the whole idea as a potential cash cow for real estate developers adapting to such forms of investment. With the pandemic having rendered the traditional and conventional real estate an under-yielding area of investment in the markets currently, fractional ownership might just pave way for a steady boom in the real estate sector. While fractional ownership may appear to be an inexpensive mode of investment to potential investors, it has its pros and cons. Procedures involving the investment in such ventures could involve detailed due diligences and legal red-tapism. Not paying attention to such procedures could end up putting stressed properties in the hands of lesser advised investors.
Moreover, expenses considering maintenance and management of the property and any such costs could essentially tip the scales against the owners should they not be able to actually utilise the property within their arrangements. Having said that, the benefits accruing out of part ownership of vacation properties, while not accounting monumentally in financial terms, are manifold where it comes to utilisation. Such a property allows the investors to change their workspace surroundings and choose rather inexpensive modes of vacation and even earn some money out of renting it out to other vacationers. Though fractional ownership could lead to a real estate investment boom the sector so gravely yearns for, the legal procedures involved might turn off a certain class of investors. Moreover, a relatively-new arena of investment always ends up taking a lot more time in yielding benefits, even if the time-value of money is rather unaccountable, since the property provides more leisurely than commercial benefits. Timeshare investments, while popular in the West, are considered to be a nascent area of investment, particularly while fractional ownership is considered. However, given the correct legal framework and taxation incentives, the current status of such investment could be elevated to providing the work-vacation culture the stability that the recent short-lived boom is testament to.
(The writer is Managing Partner KS Legal and Associates. The views expressed are personal.)
