Fractional real estate investing allows Indian investors to own a share of high-value properties through regulated structures without buying physical real estate outright. This guide explains how fractional ownership works, its legality in India, risks, returns, and who it is best suited for.
Traditionally, investing in real estate has required large amounts of capital to be tied up in an immovable asset. For many investors, this made property investing aspirational but out of reach. However, in recent years, there has been a shift in how Indians invest in real estate.
Along with options such as real estate mutual funds and Real Estate Investment Trusts (REITs), fractional real estate investment has emerged as a model that allows investors to become partial owners of high-value properties.
This guide explains how fractional real estate investing works, the types of properties involved, its benefits, risks, and the tax framework governing these investments in India.
What is Fractional Real Estate Investing?
In 2014, SEBI introduced changes to REIT regulations, creating a new category called Small and Medium REITs (SM REITs). Its structure makes it easier for individual investors to participate in high-value real estate through SEBI-regulated platforms, commonly known as Fractional Ownership Platforms (FOPs).
Under this model, investors pool their money to purchase immovable assets through a Special Purpose Vehicle (SPV), thereby enabling them to access premium real estate with lower capital. For example, instead of a single investor deploying ₹150 crore to acquire one property, 150 investors can invest ₹1 crore each and become partial owners of the same asset. This model earns through rental income and long-term capital appreciation generated by the underlying property. Typically, small and medium REITs aim to deliver annual returns in the range of 12% to 18%.
Since their introduction, Small and Medium REITs have undergone significant regulatory changes. Initially, fractional ownership platforms were capped at an asset value of ₹500 crore. In 2023, SEBI revised this threshold to ₹25 crore. Subsequent updates and clarifications have continued to issue through 2024 and 2025, and have further strengthened governance standards, improved disclosures, and enhanced protection for investors.
Now that the basic idea of fractional real estate investing is clear, the next step is to understand how this model actually works in practice
How Does Fractional Ownership Work in Real Estate?
Fractional real estate follows a structured, step-by-step process that allows multiple investors to collectively own and earn from a single property.
- Choose a platform
Investors begin by selecting a platform that offers fractional ownership opportunities and lists curated real estate assets.
- Select the property
The platform showcases residential or commercial properties, allowing investors to evaluate location, potential returns, and investment size.
- Buy a fraction
The chosen property is divided into smaller ownership units, and investors purchase a fraction based on their capital and risk appetite.
- Ownership via SPV
The property is held through a Special Purpose Vehicle (SPV), with investors becoming shareholders or partners in that entity.
- Earn returns
Rental income and capital gains, after expenses and management fees, are distributed among investors in proportion to their ownership.
While the investment process remains largely the same, the type of property chosen plays a key role in determining risk, returns, and income stability.
Types of Properties under Fractional Real Estate Investing
Fractional ownership platforms offer access to a wide range of properties, including commercial as well as residential.
- Grade-A office spaces
These are premium commercial offices leased to established corporates and multinational firms. They typically offer stable rental income due to long-term leases and strong tenant demand.
- Pre-leased commercial properties
These properties already have tenants in place at the time of investment. This reduces vacancy risk and allows investors to start earning rental income from day one.
- Warehouses and industrial parks
Driven by the growth of e-commerce and logistics, warehouses have emerged as a strong fractional asset class. They often provide predictable cash flows backed by long-term contracts.
- Co-working spaces
Fractional ownership in co-working properties allows investors to benefit from flexible office demand. Returns depend on occupancy levels and sub-leasing performance.
- Holiday homes and vacation properties
Located in tourist destinations, these properties earn income through short-term rentals. Demand of these properties rise as travelers increasingly prefer vacation homes over hotels.
The variety of properties this type of investment allows has gained traction amongst investors looking for flexibility and diversification. Let us look at the major benefits of fractional real estate investing.
Benefits of Fractional Real Estate Investing
The growing popularity of fractional real estate investing is driven by the practical advantages it offers over traditional property ownership.
- Low entry barrier
You can own a slice of premium property without buying the whole asset, making high-value real estate accessible to retail investors.
- Regular income potential
Many fractional deals pay rental income, or short-term lease returns proportional to your share, offering steady cash flow alongside capital gains.
- Diversification across assets
With smaller tickets, you can spread capital across offices, warehouses, holiday homes, or co-working spaces, reducing single-asset concentration risk.
- Professional asset management
Platforms and SPVs handle leasing, maintenance, and tenant contracts, so investors gain property exposure without day-to-day hassles.
- Access to institutional-grade assets
Fractional structures and SM-REIT routes let retail investors participate in Grade-A commercial assets and long-term leased properties that were previously out of reach.
However, like any investment linked to real assets and market cycles, fractional real estate also comes with risks that investors must evaluate carefully.
Risks and Considerations in Fractional Real estate Investment
Before investing, it is important to understand the potential risks and operational considerations that can impact returns and liquidity.
- Platform & governance risk
Always check the platform’s track record. Poor governance, weak disclosure, or a platform failure can hurt an investor’s assets.
- Liquidity and exit risk
Fractional real estate investments, especially those structured as SM REIT schemes, do not offer instant liquidity. While assets can be exited gradually by selling properties one by one, REIT regulations require the investment manager to initiate delisting and winding up of the scheme if no assets remain for over six months (extendable by another six months with unitholder approval)
- Valuation and price discovery risk
Unlike listed REIT units, private fractional stakes may lack transparent, frequent price discovery; valuation methods can vary and sometimes rely on infrequent appraisals. That can widen bid-ask spreads and make mark-to-market returns uncertain.
- Concentration & tenant risk
Returns hinge on the asset’s tenant quality and lease terms; vacancies, tenant defaults, or concentrated exposure to one developer/location can meaningfully dent income and valuations.
Beyond operational and market risks, taxation plays a key role in determining the final returns an investor takes home.
Taxation on Fractional Real Estate in India
In most fractional real estate structures in India, properties are held through an LLP or a similar special-purpose entity. Any profit earned from rental income or asset sales is first taxed at the LLP level at the applicable rate, which includes surcharge and cess levied at 34.95%.
Once this tax is paid by the LLP, the income distributed to investors is generally exempt in their hands under Section 10(2A) of the Income Tax Act. This prevents double taxation and means investors typically receive post-tax returns without additional tax liability on the distributed profits.
Note: For SM REITs, taxation follows the “pass-through” status similar to standard REITs, where rental income is taxed at the investor’s slab rate if the SPV doesn’t pay corporate tax.
Conclusion
Over the last decade, real estate investing has evolved from being a purely physical asset class into a more structured and digitally accessible investment. This shift has been effectively led by the regulatory reforms done by SEBI, especially in making commercial real estate exposure more approachable for HNIs and NRIs.
As this investment format continues to evolve, fractional real estate is establishing itself alongside traditional property and REITs, giving investors a more affordable way to access high-value real estate while maintaining flexibility and diversification at the portfolio level.
