Fractional real estate vs REITs: What smart investors need to know

As Indian investors seek smarter, diversified investment options beyond equity and fixed income, real estate is fast emerging as a preferred choice.

But within this asset class, two routes stand out for retail investors: REITs (Real Estate Investment Trusts) and fractional real estate ownership.

While both offer access to income-generating real estate, they differ significantly in scale, structure, and investor experience.

A Growing Market for Fractional Ownership

The fractional ownership market in India is currently estimated to be worth $600 million, signaling a rising interest among retail and HNI investors looking to access high-value commercial properties with smaller ticket sizes.

This model enables multiple investors to pool their capital and collectively own a portion of a premium real estate asset, such as office spaces, warehouses, or retail buildings.

According to Harsh Parikh, Partner at Khaitan & Co, the entry threshold for fractional ownership is considerably lower than that of REITs. “The minimum requirement for a manager to commence an investment through fractional ownership is ₹50 crore, whereas for a REIT it is ₹500 crore,” he explains.

“Fractional ownership market in India accounts for around $600 million dollars, and the size of the Indian fractional ownership market is slated to grow in the coming years,” added Parikh.

Scale and Stakeholders: Institutional vs Retail Play

REITs, on the other hand, are much larger in scale and are typically backed by institutional investors. These investment vehicles own and operate a portfolio of income-generating assets, and investors can buy shares of the REIT listed on stock exchanges. Currently, India has four listed REITs:

• Embassy Office Parks REIT
  
• Mindspace Business Parks REIT
  
• Brookfield India Real Estate Trust
  
• Nexus Select Trust REIT
  

“REITs offer access to a diversified set of properties, whereas in fractional ownership, investors co-own a single, identifiable property and have a certain percentage ownership in the property’s title,” Parikh adds.

Mutual Funds vs Direct Stocks: The Control Factor

To simplify the distinction, Kunaal Shah, Partner – Corporate & Real Estate Practice at Trilegal, offers a helpful analogy: “If a REIT is like a mutual fund, fractional ownership is more akin to owning individual stocks. REIT investors have no say over which properties are included, while fractional owners have the freedom to choose the exact property they want to invest in.”

This control can be a double-edged sword. While fractional ownership provides the opportunity to select potentially high-yielding properties, it also places more responsibility on the investor to assess risk and perform due diligence. On the flip side, REITs offer a professionally managed, diversified, and relatively passive exposure to real estate.

Returns, Liquidity, and Risk Profile

REITs are highly liquid, since they are traded on stock exchanges, and tend to deliver stable, debt-like returns—making them attractive to conservative investors seeking consistent income.

Fractional real estate, in contrast, typically comes with lower liquidity and longer lock-in periods, but may offer higher potential returns. “Returns from REITs are more akin to fixed income, while fractional ownership can have both upside and downside, similar to equity investments,” notes Shah.

Which One Should You Choose?

Both investment avenues have their merits:

Choose REITs if you prefer diversification, professional management, lower minimum investment, and liquidity.

Opt for fractional ownership if you seek more control over the property selection, are comfortable with longer holding periods, and are willing to take on higher risk for potentially higher returns.

What’s clear is that fractional real estate is democratizing access to high-value commercial property, enabling smaller investors to build a real estate portfolio once exclusive to institutions and ultra-HNIs. Meanwhile, REITs offer a regulated, lower-risk entry point into the same world of income-generating real estate.

As the Indian real estate investment landscape continues to evolve, understanding the structure, risks, and return dynamics of these models is crucial for making informed, long-term decisions.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)