Why fractional ownership is the future
Companies like Uber and Airbnb have disrupted the idea of ownership. While in the past owning a car and home was a point of pride, sharing living space, rides and goods have become the norm.
There’s no surprise that is trend is set to pick up in real estate through the idea of fractional ownership.
The concept itself isn’t new; in the 1960s, the idea of ‘sharing’ ownership of a property gained popularity through timeshares, where multiple people could purchase a share of time at a property like a vacation resort.
Today’s idea of fractional property ownership, meanwhile, allows ownership of a property to be split among as many investors as desired, enabling access for some investors who may not be able to invest in a property otherwise.
However, there can be some downsides. Jim Lanctôt, a North Vancouver realtor, tells Yahoo Finance that potential buyers should always do a cost-benefit analysis, as capital appreciation in some types of real estate is limited. And, sometimes these investors might not see a high return if they only own a small piece of a property. “An uber-inclusive high-end service model can drive monthly fees through the roof,” Lanctôt said. However, emerging technology — especially blockchain, which allows many people to record information on a decentralized platform — can allow these deals to be completed more transparently and fairly.
How technology enables fractional property
There are already platforms that use blockchain as a foundation for fractional investing. RealT, a U.S.-based company, uses digital tokens to distribute ownership of properties. The token share determines how much revenue owners collect from rent, and without the need for bank transfers, rent can be collected more quickly.
The company says that its tokenization model means that the tokenized assets can be more easily traded on a secondary market, while the public ledger that the blockchain runs on means that ownership cannot be tampered with.
In some jurisdictions, fractional property platforms are already making their way into mainstream stock exchanges. DomaCom, for example, was the first fractional investment platform to be listed on the Australia Stock Exchange. The platform allows investors to purchase between 1% to 100% of units in a sub-fund, while DomaCom charges an annual management fee of 0.88% of the total funds invested.
Fractional investing can be a path to ownership
Fractional ownership can also extend to those trying to own a home. In September 2019, Divvy, a U.S. startup that allows people to transition from renting to ownership, raised US$43 million. When someone makes a rental payment on a property, Divvy takes a portion and puts it towards a down payment on owning the home in the future. For single-income families or those with poor credit, it can be an important stepping stone.
“For us, the mission is really important to be serving those who I think most benefit from access to ownership and who most struggle with it,” Adena Hefets, co-founder of Divvy, told TechCrunch.
With blockchain is still finding mainstream adoption and other tech platforms are gaining traction, there is still a lot of potential for fractional property platforms to make an impact.
Would you consider fractional ownership? Let us know in the comments.