Do you want to have a home in your favourite holiday destination, such as Goa? But don’t want to buy a second home or take the headache of its maintenance?
Then, you can look at fractional ownership of holiday homes.
Fractional ownership of holiday homes
Fractional ownership of a holiday home means that you can become a part owner of a holiday home.
Typically, these holiday homes are located in hilly places with access to beaches, such as Goa, Himachal Pradesh, Uttarakhand and West Bengal. A few platforms have international presence or plan to go international within a few years.Also Read: Small & Medium REITs framework to boost property fractional market growth by 10 times to $5 bn, say industry players
Benefits of fractional ownership of holiday homes
Fractional ownership of holiday homes helps to overcome the issues faced by the second home market.
Mayur Raj Kapoor, Co-Founder & CEO, BRIK itt shared that he introduced fractional ownership of holiday homes to address these problems.
“There are three main issues we identified in the second home market. First is affordability, as buying a second home in India is a distant dream for many. Second is the challenge of managing and maintaining the property, especially when it’s far from your primary residence. Third is underutilization, as holiday homes are often used for only a fraction of the year,” said Mayur.
Mayur added that this platform offers a minimum ticket size starting from four to five lakh rupees, going up to 50-60 lakh rupees. This affordability factor makes it accessible to many individuals, including CXOs, professionals, and even those with a budget constraint.
Shravan Gupta, Founder and CEO, YOURS Second Homes, shared that fractional ownership of luxury homes enables individuals to enjoy the benefits of owning a luxurious second home without the hassle of managing it entirely on their own.
“Around the world, individuals often possess second homes, ranging from farm houses nestled in the hills to beachfront properties. These secondary residences are utilised for approximately 22 to 25 days annually. However, for the remainder of the year, these properties require ongoing maintenance, such as running swimming pool filters and tending to gardens. While some homeowners opt to list their properties on platforms like Airbnb for rental income, many prefer not to rent out their premium homes to strangers. This aversion stems from a desire to maintain the integrity and exclusivity of the property and ensure personal enjoyment rather than solely viewing it as an investment opportunity. Therefore, fractional ownership, or co-ownership, emerges as a practical solution. Through fractional ownership, multiple individuals can collectively invest in a property, allowing them to share the costs of maintenance and upkeep while also providing each owner (or their guests) with dedicated time to utilise the property for their leisure,” said Shravan.Also Read: Hubtown 25 South: Unveiling the Nexus Between Luxury Homes and Professional Success
Terms of use
In addition to sharing the ownership and costs associated with it, depending on the platform, investors can stay a certain number of days in a year, rent out the remaining days or gift their days to their friends.
“In our model, we divide each property into eleven equal fractions called briks. Each property forms a new private limited company (SPV), with all eleven owners being equal shareholders. As a brik owner, you benefit from using the property 30 days a year. If you don’t use all your allocated nights, we rent them out on platforms like Airbnb, and the rental income is credited to your bank account annually,” said Mayur.
However, YOURS doesn’t provide their clients with the facility to rent it out.
“Every fractional owner gets a one-eighth share in a second home, which translates into 45 days a year. People can use it for 45 days and comfortably enjoy the property, hosting friends and family for memorable getaways. However, we don’t provide the facility to rent out the property. They can gift it to their friends and family members. YOURS operates in the luxurious segment, which is a lifestyle choice along with an investment option,” said Shravan.Also Read: Why is diversifying your portfolio with commercial real estate a smart move?
Yield and price appreciation
Experts believe that in addition to staying in a holiday home, fractional ownership of holiday homes can also be considered as an asset class for diversification.
Karan Shetty, Founder, Claravest, said that fractional ownership of holiday homes is an exciting investment opportunity, particularly in areas like Goa and mountainous regions where tourism is thriving.
“Investing in holiday homes can offer higher rental yields, typically ranging from 5% to 6%. While the rental returns may not be as high as commercial rentals, the potential for capital appreciation of these properties are higher. Investing in residential real estate can be done at a lower investment ticket size which adds to the appeal,” he said.
Mayur added that the expected future growth rate will provide fractional owners with good returns on their investments.
According to a research report by Axon Developers, India’s second and holiday home market is growing at 23.6%.
Shravan said that real estate values in many of these locations will tend to appreciate over time, particularly in India, where the market is generally on an upswing.
“Second home markets, in particular, have been experiencing significant appreciation, often ranging between 8% to 10% annually. Let’s consider a scenario. I purchased a share of a second home, and after a few years, I decided to sell. Suppose the value of the asset appreciates by 15% the value of my share will appreciate by the same percentage. This is a substantial gain for me. This potential for capital appreciation further enhances the appeal of fractional ownership as a lucrative investment opportunity,” said Shravan.Also Read: Luxury holiday home rentals rebound as second wave ebbs
Fractional ownership of holiday homes vs. commercial properties
Aryaman Vir, CEO, Aurum WiseX, said that when investors want to invest or own a fractional or any stake in a real estate property, they need to be clear on whether it’s a lifestyle or a financial investment.
“When making a financial investment, you do it for maximum returns. When you’re doing a lifestyle investment, you might buy a house in Goa, even if it doesn’t make complete commercial sense. Usually, when investors are confused between the two or fall at the intersection where they’re trying to invest but also want to mix it with lifestyle, things start to go south,” said Aryaman.
“Regarding holiday homes versus commercial real estate, it’s important to consider the structure of the platform being offered. However, in my opinion, commercial real estate is a better choice due to the predictability of cash flow. This is because tenants sign ten-year leases, providing long-term stability. In contrast, with a holiday home, your income depends on bookings, which can fluctuate greatly depending on the season. For example, if there is a down season, you may not receive any income for up to three months,” he added.
Renting vs. fractional ownership
You typically have to pay a per-day charge when you book a room or resort.
On the other hand, in fractional ownership, you can save on rental charges in the long term.
Additionally, fractional ownership often includes perks such as designated storage compartments for personal belongings. Moreover, fractional ownership offers a space that makes you feel at home, creating cherished memories with family and friends.
The amount saved on rental will depend on the type of property.
“The cost of staying in our properties will range from Rs.70,000 to one lakh for a single night stay. I’m offering you accommodation for 45 days. So, even at ₹70,000, we’re looking at a value of more than 30 lakhs. Essentially, you’re getting a notional worth of ₹30 lakhs for your stay within a year,” said Shravan.
Exit
Fractional owners can sell their units as per their contract. The platform can sell to existing users or users looking to invest in these properties.
People can transfer their units among each other through their holiday home portal.
However, few experts feel that exiting might become an issue if the demand comes down or there aren’t any takers.
Future of holiday homes
Studies show that the number of HNI families in India is likely to grow in the near future.
According to a Fortune report, the HNI population with an asset value of $ 1 million is expected to rise to 16.5 lakhs by 2027 from 7.9 lakhs in 2022.
“According to research, India has around 800,000 HNI families, of which 15%, or roughly 1.20 lakhs, desire to acquire a second home. This signifies a significant demand for second homes in the market. Hence, one can expect significant demand for fractional ownership of holiday homes as well,” said Shravan.
Padmaja Choudhury is a freelance financial content writer. You can reach out to her at padmaja@padmajachoudhury.com.
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