Dubai fractional ownership is promising, but untested

• Hailed as ‘good entry-level model’
• But schemes not tested by downturn
• Popular in India and with startups

Fractional ownership of property in Dubai promises to widen access to real estate investment in the emirate’s surging market.

But the lack of a proven secondary market raises questions about just how much liquidity this asset class can count on in a potential crisis, experts say.

Buying even small portions of one or more units across the emirate may turn out to be attractive for young people who are building up savings and foreign investors eager for a toehold in this growing global city, according to Michael Waters, associate professor in real estate at Heriot-Watt University in Dubai.

---

---

“I think it is a good entry-level model for the Dubai market,” Waters tells AGBI. However, he says, “the platforms just originated in the last few years. They haven’t really been tested by a downcycle.”

Fractional property ownership means that – in theory – all manner of investors can join up in a special purpose vehicle and buy shares of one or more properties for far less than they would spend on purchasing an entire home, apartment or office individually.

The shareholders pay fees to their investment platform of choice to cover commissions, maintenance and repairs. They earn rental income and whatever price appreciation a property accrues, in proportion to their initial outlays.

• Rising prices risk making Dubai homes ‘unattainable’

• Dubai’s rich switch from home buyers to investors

• What Dubai’s united nations of property buyers want

The concept has been around the US for many years without ever really taking off, though technological advances mean startups are pitching fractional ownership anew these days.

Fractional ownership is flourishing in India, however, where sky-high prices are cutting many people off from direct ownership.

Now, multiple so-called “proptech” (property technology) platforms are bringing the concept to Dubai, welcoming investments as low as a few hundred dirhams.

Among them is Prypco Blocks, whose founder and chief executive is Amira Sajwani of Damac Properties. In early May, the company said it had funded its first property at Bellevue Towers in downtown Dubai, with 209 subscribers from more than 40 countries investing an average of AED6,220 ($1,700).

“We expect to pay out the first rental income by the end of May 2024,” Sajwani said in a statement at the time.

What happens when investors run for the exit during a market downturn remains to be seen

There are, of course, pros and cons to fractional property ownership. Fees add up, says Waters, but they relieve investors of the daily running of the property. There is less room to negotiate than in a traditional real estate deal, but that means less time spent on it. 

“I could buy shares in 10 properties in Dubai and if one of those properties floods but the other nine don’t, I’ve still got the income from them,” Waters says.

Once an investor buys in, they are locked in for a year. After that platforms offer windows every few months for buyers to sell.

The full expected life of the investment – at least at Prypco Blocks – is five years, after which the property is sold and investors divide up the proceeds. Shareholders can vote to modify some of the timelines.

What happens when investors run for the exit during a market downturn remains to be seen.

Some big REITs (real estate investment trusts, the closest approximation to fractional ownership platforms, though far larger and institutional in scope) briefly prevented withdrawals early last year as office prices slumped with widespread working from home after the pandemic. 

Speaking at a recent proptech event in Dubai, Robert Farquhar, senior executive officer at Prypco Blocks, said: “If I have a property and 600 people are invested in it, there are another 599 people that already own part of that property, they’ve already made the decision to purchase it.

“It’s much easier than going out and finding someone who likes your apartment.” 

Data is wildly uneven about just how big the fractional ownership segment is around the world.

Late in 2023, the Chicago-based financial services firm Morningstar found fewer than a dozen platforms offering fractional ownership of rentals in the US, with average investments in the hundreds of dollars and a combined market capitalisation in the hundreds of millions of dollars. 

In India estimates by Knight Frank and JLL-PropShare over the past year have put the current fractional ownership market at between a few hundred million and a few billions of dollars. 

What the estimates have in common, however, are double-digit annual growth projections. 

In March the Indian markets regulator issued new rules to protect the least sophisticated investors from scams.

These include requirements for promoters to have prior real estate experience, and to buy and hold some shares in their properties for a number of years, according to Ashoo Gupta, a partner with the law firm Shardul Amarchand Mangaldas & Co in Mumbai.

“So there’s transparency, accountability, ways and means to provide the investor a proper exit if they want to exit,” Gupta says.