Real Estate-Based Comparative Analysis: Fractional VS Traditional Ownership

September 8, 2023
6 min read

It is said that necessity is the mother of invention, and when the need arises, actions are initiated to establish valuable solutions or channels. In this case, investing digitally in real estate is now more accessible than ever to people all over the world! This enablement has had positive impacts on the sector’s dynamism, transparency, and appeal to investors who were once unable to tap into the asset class.

Recently, the foundation of real estate investing has experienced major shifts with the advent of digital tech, with the intention to democratize traditional investment channels. With the rapid adoption of modern technology, business models like fractional ownership have emerged as promising alternatives to traditional forms of ownership within real estate and other lucrative asset classes as well as a diverse set of industries.

Understanding Traditional Real Estate Investment

The conventional approach to real estate investment typically requires a substantial initial capital investment to purchase the full property which has deterred individuals with a low affinity to spend from taking part in real estate ventures.

Moreover, managing a property individually has several drawbacks, as it demands significant time and expertise because owners need to handle various tasks like tenant relations, maintenance, legal compliance, evictions, and repairs. If mishandled, this can inevitably lead to property vacancies that can be financially straining and disrupting as this pauses rental income flow.

Traditional real estate ownership, or what is often referred to as “direct ownership” poses significant challenges for investors, especially when on the cost front, demanding property management responsibilities that are time-consuming, and limited diversification opportunities exposing investors to higher risks as their funds remain tied up in a single property.

The Rise of Digital Real Estate Investing

Over time however, the practice of real estate investing has become increasingly digital with the emergence of online crowdfunding platforms and the adoption of REITs in the early to mid-2000s.

Some key factors driving the digitization of real estate investments include:

• Diversification opportunities

• Enhanced transparency

• Increased accessibility

• Improved liquidity

• Automation and efficiency

Fractional Ownership gains popularity

Where fractional ownership comes into play is that it allows multiple investors to collectively own a portion or fraction of high-value properties. Contrary to traditional real estate investments, instead of requiring substantial capital to purchase an entire property, investors can pool their resources and own a percentage of the asset proportional to their investment amount. Here is the latest data/info showing how impactful this fractional ownership model has become worldwide and, particularly in Dubai:

According to a report by estate agent Knight Frank, the global fractional ownership market was valued at $5.39bn in 2020 and is expected to grow to $8.92bn by 2025. Factors driving this growth include the increasing affluence of the middle class, the rising popularity of travel and experiences, and the growing availability of fractional ownership platforms.

According to Hamptons International, barring any significant global recession, Dubai’s real estate market is expected to experience an upward trend in 2023, especially after the sharp witnessed growth during 2022. Nonetheless, this comes as no surprise, especially after the market’s positive trajectory that is supposedly supported by the increasing impact of fractional ownership, which has been contributing to the growth and stability of the real estate sector.

The fractional model has already resulted in a positive impact on the Dubai economy in many ways. It creates new jobs, stimulates investments, and promotes tourism. It is also making luxury assets more accessible to a wider range of people, all thanks to platforms like Stake, which encourages and allows people to invest in this kind of ownership. This is not all, as Stake also allows people to invest in a golden visa program. You might be wondering what’s that for sure! A Golden visa program with stake allows for high net-worth individuals (HNI) from all over the world to invest fractionally in real estate and secure a golden visa alongside 10 years of residency in the UAE if they meet the minimum investment required.

Curious about the differences between the two models?

Ultimately, how an investor chooses to invest in real estate is reliant on their financial bandwidth, risk appetite, and personal wealth objectives.

How tech impacted one of the most popular asset classes in the world

• Technology has made fractional ownership in real estate possible, allowing multiple investors to collectively own parts of valuable properties.

• Blockchain technology ensures transparent, tamper-proof record-keeping and enhanced security, fostering trust in real estate investment processes.

• Digital platforms enhance efficiency and accessibility in real estate investment, allowing online access to opportunities and simplified management.

Case Study:

Stake presents a great use case for the fractional ownership business model in real estate. as investors with tight budgets are empowered and enabled to invest to own shares in prime properties in Dubai’s best neighborhoods. All the while, investors benefit from long-term capital appreciation and earn a monthly income from rent, all managed efficiently through third-party property management and SPVs. Mind you, by leveraging third-party property management services and utilizing SPVs, investors can now venture into new opportunities confidently, knowing that their time is well-spent, investments are managed securely and efficiently, and passive income will flow steadily at the end of each month.

What’s next?

With advancements in technology and a focus on accessibility, the future of investing appears to be headed toward a more inclusive and technologically-driven landscape. One current & prominent direction is the increased adoption of AI and blockchain technology, particularly smart contracts, to revolutionize how investments are made and managed. Such technologies offer enhanced transparency, efficiency, and security, enabling more seamless and trustworthy transactions. In this dynamic landscape, embracing innovation and staying attuned to emerging trends will be the key to unlocking the full potential of real estate investing and enabling investors to build a brighter financial future, no matter where they are in the world.