Investing in Fractions: Real Estate, Luxury Assets, and Everything in Between.

In an era where asset prices especially in real estate are soaring beyond the reach of average investors, fractional ownership emerges as a progressive investment model that offers access to high-value assets at significantly lower capital outlays. In essence, fractional ownership refers to shared ownership of a tangible or intangible asset by multiple investors, each holding a proportional interest.

While the concept is applicable across asset classes like yachts and aircraft, it is in commercial real estate (CRE) that fractional ownership is now gaining substantial traction, particularly in India. Thanks to evolving financial infrastructure and digitized investment platforms, this model is bridging the gap between institutional-grade real estate and retail investors.

A Strategic Shift in Real Estate Investment

Traditionally, prime commercial real estate—such as office parks, industrial warehouses, or retail centers—was accessible only to institutional investors and high-net-worth individuals due to its prohibitively high entry cost. Fractional ownership platforms, however, are democratizing access by allowing investors to co-own pre-leased Grade A assets with ticket sizes as low as ₹10–25 lakh, as per the KPMG report and The Economic Times article.

For instance, a ₹25 crore office asset in a Tier-1 city leased to a multinational corporation could be divided among 100 investors, each owning a 1% stake. Investors benefit from rental yield, capital appreciation, and diversification, much like traditional real estate ownership—but without the full burden of asset management or high capital risk.

How It Works in Practice

Fractional ownership platforms typically follow a tech-driven, SEBI-compliant structure. The real estate asset is held in a Special Purpose Vehicle (SPV)—usually a private limited company—wherein investors become shareholders in proportion to their ownership. The SPV is responsible for collecting rent, maintaining the property, and distributing income to investors after deducting management fees.

To illustrate: Suppose a commercial asset yields a pre-tax rental return of 8% per annum. After deducting expenses and platform fees, investors might receive 6.5–7% net annual returns, paid quarterly or monthly. Additionally, if the asset appreciates over a 5–7 year holding period, the capital gains are proportionally distributed at the time of asset exit.

Benefits Beyond Affordability

While affordability and access are initial draws, fractional ownership offers a host of advanced investment advantages

Regulatory and Risk Considerations

Despite the growing popularity, fractional ownership remains an unregulated segment in India under SEBI's framework, although discussions are ongoing to bring it under a structured regulatory umbrella. This presents both opportunities and risks.

• Regulatory arbitrage currently allows flexibility, but the absence of standardized guidelines can lead to platform-specific inconsistencies.

• Exit risk: Since the market for selling fractional ownership stakes is still developing, early liquidation may not always be feasible or profitable.

• Platform risk: The success of the investment heavily relies on the competence, transparency, and governance practices of the platform managing the asset.

To mitigate these risks, KPMG advises investors to scrutinize platform credentials, evaluate the underlying asset quality, and understand cash flow projections and fee structures before committing capital.

Tax Implications for Fractional Investors in India

Tax treatment for fractional ownership in real estate primarily falls under two categories:

1. Rental Income: Investors receive a share of rental income from the SPV, which is typically treated as dividend income. If the SPV is distributing profits as dividends, such income is taxable in the hands of investors at their applicable slab rates, as Dividend Distribution Tax (DDT) was abolished in India in 2020.

2. Capital Gains: When the asset is sold and investors receive their share of proceeds:

• If the investment is held for more than 24 months, gains are taxed as long-term capital gains (LTCG) at 20% with indexation benefit.

• For shorter holding periods, gains are taxed as short-term capital gains (STCG) at the investor’s applicable slab rate.

Investors should also be aware of TDS (Tax Deducted at Source) implications on rental income distributed by the platform, which must be claimed when filing tax returns.

Resale and Exit Mechanisms in the Current Indian Market

At present, resale of fractional ownership is not standardized due to the absence of a centralized or regulated secondary market. However, platforms are adopting the following practices to facilitate exits:

1. Platform-Managed Secondary Sales: Some platforms offer a curated resale mechanism where investors looking to exit can list their stake for resale. Other platform users or new investors can then buy these stakes at a mutually agreed-upon price.

2. Lock-in Periods: Most fractional ownership investments include a minimum lock-in period, usually ranging from 12 to 36 months, after which resale is permitted—often subject to availability of buyers and platform approval.

3. Exit Upon Asset Sale: At the end of the holding period (usually 5–7 years), the platform arranges for a complete sale of the property. Proceeds from the sale are then distributed proportionately to all investors. In some cases, platforms may opt for early exits if attractive market offers emerge.

4. Challenges:

• Lack of liquidity: Finding a buyer at the desired price is not guaranteed.

• Valuation subjectivity: Exit pricing depends on third-party valuations or buyer interest.

• Absence of regulation: Since fractional ownership is still an unregulated domain, resale mechanisms vary significantly between platforms.

Fractional Ownership vs. Indirect Ownership

Fractional ownership is the direct, proportionate ownership in a tangible or intangible asset, where multiple investors pool capital to co-own a single high-value item like commercial property, a vintage car, or a luxury yacht.

Whereas, Indirect ownership involves investing in a company, trust, or fund that itself owns the underlying asset. Investors hold shares or units in the entity, not the asset directly. REIT’s are an example. Here, investors have economic exposure but not asset-level ownership.

The implications of this difference are significant. Fractional owners typically have more visibility into the specific asset, potential usage rights, and in some cases, decision-making input on sales or leasing. Indirect owners, on the other hand, rely on professional management and institutional governance but have little or no say over individual asset strategies.

Fractional Ownership Across Exotic and Lifestyle Assets

Everyone seems to be a millionaire online—with so many people showing off yachts, private jets, and even horses. But here’s the loophole: you don’t have to be the sole owner of these luxury and status-driven assets. Instead, share ownership with others who desire the same experiences. Fractional ownership goes far beyond just real estate and commercial spaces. The wealthy are increasingly investing in passion assets and how much does it take to participate:

Collectibles (vintage watches, comic books, rare coins): ₹10,000 to ₹1 lakhFine art : ₹50,000 to ₹10 lakhLuxury and classic automobiles: ₹5 lakh to ₹50 lakhPrivate jets, helicopters and Superyachts: ₹25 lakh to ₹2 croreThoroughbred racehorses: ₹1 lakh to ₹20 lakhSports franchises :  ₹5 lakh onwards

To make these investments more accessible to retails and HNI investors, platforms often divide ownership into digital shares or tokens.

Tax Implications Across Asset Classes

Taxation varies depending on the asset type, holding structure, and jurisdiction:

• For tangible assets like art, watches, or cars, capital gains tax typically applies at short-term or long-term rates depending on the holding period (36 months is the threshold in India for LTCG on non-equity assets).

• Income earned from assets like music royalties or racehorses may be taxed as business income or royalty income, subject to slab rates or specific tax provisions.

• Usage-based models (e.g., co-owning a yacht or jet) may attract GST and luxury taxes, especially if operational costs are pooled.

• In case of ownership through a SPV or platform, tax treatment may be at the entity level first, and then again when income is distributed to individual investors (similar to dividends).

  Liquidity and Exit Strategies: How Easy Is It to Sell Your Share?

  Liquidity remains one of the biggest challenges in fractional ownershipes pecially for non-standard assets.

• Collectibles and art: Highly illiquid; exit often depends on finding a buyer through platform-facilitated resale or auctions. Some platforms offer curated secondary markets, but with low frequency.

• Luxury assets (cars, yachts, jets): Resale windows may be scheduled annually or biannually. Exit depends on the asset’s depreciation and demand.

• Racehorses or sports shares: Subject to seasonal dynamics and regulatory approvals. Returns depend on performance or appreciation.

• Wine and rare goods: These may offer a planned exit horizon (e.g., 3–7 years) based on appreciation timelines, but interim liquidity is limited.

  
  

Unlike equity investments, there are no standardised exchanges or marketplaces for most of these asset classes, though tokenization and blockchain solutions are beginning to emerge. Some platforms promise buyback guarantees or pre-approved exit cycles, but these should be carefully vetted for credibility and transparency.