FAQ
Here’s a basic FAQ for Fractional Ownership
Fractional Ownership is the owning of a share (Equity Shares and CCDs) of a Special Purpose Vehicle (SPV) or a Company, which owns the property.
One can invest through the SPV in an under construction, ready or rented property which owns the property. The income, expenses and profits from the property are shared by multiple fractional owners managed by the Custodian and the Asset Manager, who runs the SPV on a daily basis for an annual fee.
Any resident or non – resident Indian with an INR denominated bank account with proper KYC can invest in fractional ownership by investing in the SPV (i.e., by owning the Equity Shares and the CCDs of the SPV). NRIs can invest in the SPVs through their NRE / NRO accounts. However, coupon payable and the yields payable and any other amounts payable to the NRIs by the SPVs will have to be paid to the bank account of the NRIs in India and can be repatriated outside of India as per applicable laws.
The minimum investment can vary on the specific investment opportunity and could be INR 15 lacs – INR 50 lacs. In some cases, the investors can have the option to pay the investment amount in tranches as well.
The SPV owns the property and appoints the Custodian or a Trustee to hold the title documents and shares certificates or convertible debenture certificates of the Company on behalf of investors. In addition, the Company and the Custodian / Trustee appoints an Asset Manager to run daily operations of the property and the Company/ SPV (“Asset Manager”). The Asset Manager also appoints the law firm, accountants, auditor, valuators, property manager to run the SPV holding the Property. The Investors will have to grant consent for the Custodian to hold the share certificates and debenture certificates of the Investors and this will be recorded in the Share Subscription cum Investor Rights Agreement (“SSIRA”) and the Deed of Adherence to the SSIRA (“Deed of Adherence”).
All income, expenses and profits of the SPV will be shared amongst the share convertible debenture holders of the SPV, in proportion to their holding in the SPV.
There are various models of the fees in Fractional Ownership. The Fees varies depending upon various investments.
Typical cycle of investment in any real estate is 6-8 years to unlock its real value. Fractional Ownership is of no different cycle.
The Asset Manager after a certain point of time (6-8 years), based on the property type (rented/ under construction) decides the best form of exit, which may either be through sale of the SPV to another set of investors or exit through REITs (if rented assets). If it’s an under-construction property, lease of the property to a good tenant and then sale to HNI’s for a yield.
Yes, the SPV generally will provide to the investors quarterly reports from time to time.
Yes, Typically, the SPV distributes the yield or the assured rent as disclosed in the Offer documents. Depending on the SPV’s earnings and expenses from time to time, the SPV will have complete discretion to decide on the rate at which the yield / interest/consideration that will be payable to the Further, all the decision in relation to the functioning of the SPV will be taken by the Board of Directors of the SPV in consultation with the Asset Management Company (“AMC”).
Yes, the AMC will charge a nominal fee of 0.31% + GST to the Investors and the fees will be deducted from the amounts payable by the SPV to the Investors.
Typically, the Asset Manager doesn’t charge any annual fees if there is no income However, the Asset Manager shall be entitled to claim the annual fee for the period when there was no income once the SPV starts generating income.
The income generated cannot be considered as Income from house property and is an investment in securities of a Company. Further the income generated attracts applicable TDS and the gains attracts short term and long-term gains in the hand of the Investors. It is advisable to seek advice from a tax expert or request to the Asset Manager for clarification.
