Fractional Real Estate
Fractional real estate investment is a model in which multiple investors pool funds to co-own a property — typically a commercial or high-value residential asset — with each investor holding a proportionate economic interest, receiving a share of rental income and capital appreciation without the cost and complexity of outright ownership.
Fractional ownership of real estate gained significant traction in India between 2018 and 2024, primarily in the commercial real estate segment — Grade A office spaces, warehouses, and co-working facilities — which offer regular rental income and lower volatility than residential assets. Platforms such as hBits, Strata, PropertyShare, and Asset Ally emerged to facilitate fractional ownership by aggregating investors who each invest a minimum of Rs 10–25 lakh into a Special Purpose Vehicle (SPV) that holds the commercial property.
The typical structure involves the platform creating a Private Limited Company or an LLP (SPV) that acquires the property. Investors receive shares or units of the SPV proportional to their investment. Rental income from the property is distributed to investors after deducting management fees and maintenance costs. The SPV is eventually dissolved when the property is sold, with capital gains distributed to investors.
SEBI recognised the growing market and regulatory ambiguity around fractional ownership platforms and issued a consultation paper in 2023 proposing to bring such platforms under the framework of Small and Medium REITs (SM REITs). The SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024 introduced the SM REIT framework, allowing platforms with AUM between Rs 50 crore and Rs 500 crore to register as SM REITs and list units on stock exchanges, providing investors with liquidity (units tradeable on exchange), regulatory oversight, mandatory independent valuation, and defined corporate governance standards. This brought fractional real estate investments into the formal regulatory perimeter.
From an investor perspective, fractional real estate offers exposure to commercial Grade A properties that would typically be inaccessible to retail investors, with rental yields of 7–9% pre-tax. However, risks include illiquidity (prior to SM REIT listing), concentration in a single asset, platform risk, and vacancy risk if the anchor tenant exits. Tax treatment follows the SPV structure: rental income is taxed as dividend from the SPV (subject to dividend distribution and TDS), and capital gains on exit are taxed at applicable rates.