Investing in real estate is something that everyone understands. It is a tangible asset, you can rent it out, remortgage it, sell it or pass it along to your loved ones. However, the capital required to purchase a property, the high cost of borrowing, the lack of clear data and managing a property can be daunting.
Enter fractional real estate ownership, a way for everyone to own a piece of a property for a fraction of the price. Here’s a breakdown of why fractional real estate ownership could be your ticket to property investment in Dubai.
What Is Fractional Ownership?
Fractional ownership brings together a group of investors, each contributing as little as AED 500 each to own a percentage of a property, depending on the amount you put in. For example, if a property costs AED 1 million, then each share of that property is worth AED 1. Meaning if an investor invests AED 20,000, then they own 20,000 shares out of a million which is 2% of the property. It’s like buying a small (or big) slice of the property pie without the hefty price tag. With fractional ownership, you can enjoy the benefits of property ownership—like rental yields and capital appreciation—without the need for a large capital investment or the headaches of managing tenants, property upkeep and maintenance.
Benefits Of Fractional Real Estate Ownership
Lower Barrier to Entry: Fractional ownership drastically lowers the barrier to entry, making property investment accessible to a wider audience. In Dubai, platforms like Stake and SmartCrowd offer shares in properties for as little as AED 500, allowing you to dip your toes into the real estate market without diving in headfirst.
Diversification: By spreading your investments across multiple properties, you can mitigate risk and increase your chances of success. Fractional ownership lets you diversify your portfolio without tying up all your capital in a single unit.
Passive Income: Each property within the portfolio is rented out to a short or a long term tenant, depending on what the shareholders want and the company suggests. The rental income of that property is then issued to all the investors within that SPV (special purpose vehicle) and are distributed as per their share in the investment.
Capital Appreciation: These platforms are always on the lookout for good offers to exit the investment and sell the unit. If a lucrative opportunity arises, the platform will inform the investors within the SPV that there is a good opportunity to sell the unit and make a decent profit. If 51% of the investors vote to sell, the unit is sold and the principal (the amount the investor initially invested) as well as the profit (the premium the unit received) will be distributed to the investors as per their share in the property.
No Hassle: With fractional investment, the platform handles all the nitty-gritty details of property management such collecting rent, managing utilities and paying fees. You get to sit back and relax while your investment works for you.
Here’s How It Works
Properties are listed on the platform, along with all the relevant information you need to make an informed decision. Once a property is fully funded by collecting investments for investors, the platform sets up a Special Purpose Vehicle (SPV), giving investors transparent ownership of the property. An SPV is a legal entity created to fulfill narrow, specific or temporary objectives for it’s shareholders. Each investor is allocated shares in the SPV proportional to their investment, allowing for easy tracking of ownership and dividends. The owner of the property on the Title Deed is the SPV, within which each share holder owns their percentage of the property.
Fractional Investments In Dubai
Dubai’s real estate market is booming, and fractional ownership is making it easier than ever to get in on the action. Various crowdfunding platform allows you to invest in properties starting at just AED 500.
Properties are listed on the crowd funding platform, along with all the associated independent valuation documents and data, including location, price, potential yields and the expected return in 5 years.
The platform makes data driven decision and metculously track data points such as rental yields, service charges, capital appreciation projections and ease of liquidating the asset in order to give investors all the information they need before they part with their hard earned money.
Fractionalized real estate ownership is a way for investors to dip their toes into the complicated world of property without all the hassle. As always, keep checking back to Viewit for the latest real estate news, views and insights on the UAE real estate market!