Fractional Property Ownership: A Guide for Investors

What Is Fractional Property Ownership?

Let us dive into the most fundamental question, what is fractional ownership? It is a unique investment pathway that allows investors to group together, collate a certain amount of money and utilize those funds to invest in high-value real estate. 

Fractional property ownership allows investors to enter the property ownership space in the UAE without having to bear all the high costs associated with it.

Fractional ownership can be a good option for investors seeking:

• Capital appreciation

• Income generation,

• Portfolio diversification

• Hands-off investment

Imagine you want to buy an apartment in Dubai with fractional ownership. There are two ways one can enter a fractional property ownership - also referred to as a jointly owned property. This can be done through an entity (e.g. Limited Liability Company) or through a Tenancy in Common (ITC). 

Through the entity pathway, ownership is established through entities such as LLCs or Limited Liability Partnerships (LLPs). 

Through TIC, each investor holds a separate deed accounting for their percentage of the property share. In this model, investors can also own varying percentages of the property and share responsibilities with co-owners. 

Who Should Consider Fractional Real Estate Ownership Investment?

Having understood what is fractional ownership, let us explore who is it a feasible option for. Those who are looking to become investors in the UAE property market but have less capital and wish to take lesser risks could opt for this pathway - as it gives them some percentage of ownership without much strain. 

If you wish to explore fractional real estate ownership, keep the following points in consideration:

• Do your due diligence and research how fractional ownership investment works. Consider reading up on Dubai laws and regulations surrounding fractional ownership. Follow market trends and data as well to obtain a well-rounded perspective. 

• Define your budget and investment goals clearly before proceeding. How much money can you set aside? Is it enough for full real estate ownership or not? How much risk are you willing to take and what percentage of a property do you want to own? Think over these questions. 

• Finding the right property. This is of paramount importance as it can greatly impact your experience and returns.

• Choose your method of investment clearly. There are various companies in the UAE that specialise in fractional ownership, such as Prypco and Stake. Ensure you research them carefully and read customer reviews to get a feel for what might be the right option for you.

Benefits Of Fractional Property Ownership

Let us move on from the meaning of fractional ownership to its benefits. This will aid you in making an informed decision. The potential benefits of fractional property ownership are:

• Lower Financial Cost: Reduced financial commitment is one of the most significant benefits of this pathway. A lower investment amount still makes you a property owner. And other costs such as maintenance and taxes will be split with your co-owners. 

• Diversification: With fractional ownership investment, you can diversify your investment portfolio as you can split your money between multiple properties rather than a larger investment in a single property. This could mean residential places, commercial spaces, and more. 

• ROI Potential: In recent years, the ROI on real estate investments in Dubai have typically been very good, with high rental yields and capital appreciation. Whilst this cannot be guaranteed in future, fractional ownership could be a way to benefit from continued growth in the Dubai real estate market.  

• Flexibility: Fractional property ownership is a much more flexible investment strategy as it offers easy entry into the property market. Often a company will take care of the admin procedures and the ongoing management of the property for you. Plus, you usually have the option to sell your share of a property at a later date if you wish.

• Robust Legal Framework:The DLD has implemented a solid legal framework for fractional ownership - which gives many investors confidence that their investment is not only legal but will also be safeguarded. 

Drawbacks Of Fractional Property Ownership

Certain drawbacks to fractional real estate ownership also exist. Understanding the associated risks will help you determine whether it is the correct route for you. 

• Limited Financing: Unlike traditional investing where you could get a mortgage, the financing options for fractional property ownership are very limited. You are unlikely to find a bank offering a mortgage option for this pathway and securing extra finances can be more challenging with fractional property ownership. This means you are likely to require all cash for your investment.

• No Involvement In Decisions: Typically, the fractional property ownership company makes decisions regarding property management, maintenance, repairs, and when to sell the property, giving you limited control over your investment.

• Restrictions on Selling: Unlike traditional property ownership, where you can sell your investment anytime, your fractional property ownership investment will likely restrict how and when you can sell your share.

• Limited Appreciation Potential: Buying a property with a mortgage allows you to potentially benefit from leveraged growth, which can generate higher returns compared to fractional ownership.

• Ongoing costs: Typically, fractional property ownership investments are managed by a company on your behalf. This company will take a fee, likely at the time of investing and on an ongoing basis. These fees will eat into your returns.

• Potential for Conflict: A drawback of fractional ownership can be disagreements between co-owners regarding property use, maintenance costs, or the timing of a sale. While most companies manage these aspects, conflicts that arise among co-owners could lead to delays or complications.

Fractional vs. Full Real Estate Ownership

Having defined the meaning of fractional ownership, let us understand its opposite: full real estate ownership. Understanding key differences between both forms of property ownership will help you make a more informed choice regarding your real estate investment. 

• Full real estate ownership means that you completely own a property—no third party is involved, whether it is an apartment, townhouse, or villa. 

• While fractional property ownership gives the owner limited usage rights, full real estate ownership gives the owner unlimited usage rights, allowing them to utilize the property as and how they want to. 

• For fractional property ownership, there may be scheduled times for when owners can utilize the property. No such criterion on limit exists for full real estate ownership. 

• Renting is possible for both pathways, but fractional ownership depends on the co-owners' agreement. Full owners can rent their property out without requiring anyone’s consent. 

• Full real estate ownership gives the owner complete property rights while fractional ownership gives only partial rights. 

Conclusion: Which Option Is Right For You?

So, which pathway is better for you? While fractional property ownership is gaining popularity among budget-conscious investors, full real estate ownership is the most popular option, as it gives owners more flexibility, property rights, advantages, and fewer restrictions.  

Once you have decided which pathway is best for you, it is time to find the right property. This is where Engel & Völkers can help. Our premium real estate services offer you:

• Expert real estate agents specialising in both off-plan and secondary market investments

• Tailored consultation sessions to understand your needs and situation

• End-to-end services - which spans the full investment journey, from the initial property search right through to handover and renting out the property.

Find the answers, processes, and solutions to all your real estate queries with Engel & Völkers Dubai at +971 4 422 3500.