Fractional ownership: The new way to own assets in a shared economy

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  Quantumrun Foresight
• December 12, 2023

Insight summary

Fractional ownership, a method where multiple parties share the costs and risks of owning an asset, is gaining traction in various sectors like real estate, fine art, and stocks, thanks to smart contracts. It's an affordable alternative to sole ownership, making luxury items like vacation homes, private jets, and yachts accessible to many. This concept extends to agriculture and public projects, with examples like US Community Land Trusts and the UK's Shared Ownership Framework for renewable energy. This democratization of ownership, though it carries higher risks, is expected to spur interest in fractional trading and attract younger investors, altering the landscape of wealth building and community development.

Fractional ownership context

Fractional ownership is an alternative to outright purchases, which allows for cost-sharing and efficient shared utilization of luxury goods, such as vacation homes, private jets, and yachts. Without fractional ownership, these items would be too expensive for most people to afford individually. Additionally, co-ownership promotes the development of local communities to administer social projects and provides greater access to essential resources. 

An example of fractional ownership is agriculture. Agricultural infrastructures can be considered a communal asset that tends to be managed by local farmers. Community-based agriculture secures ownership rights to rural groups and alleviates poverty. Additionally, group ownership can accelerate production investments.

Another instance of fractional ownership includes the US Community Land Trusts, overseen by nonprofit organizations that provide affordable housing opportunities for low-income people as of 2022. Meanwhile, in 2014, the UK government launched its Shared Ownership Framework to encourage companies and local communities to share ownership of renewable energy projects, which would help make the transition to green energy sources easier.

Disruptive impact

Blockchain and tokenization have elevated fractional ownership to a new level. The preferred method of asset ownership is tokenized ownership, as it is more transparent, cheaper, and decentralized. This form of ownership is flourishing within the non-fungible token (NFT) space known as F-NFTs or fractional NFTs.

An example of a tokenized ownership platform is Fractional.art, which hosts several famous digital art collections that anyone can partly own as of 2022. Another fractional marketplace, The Piece, offers shared art and real estate ownership. Finally, in 2022, Otis introduced fractional ownership of rare collectibles, such as books, sports cards, and premium sneakers.

Another emerging area that promotes communal ownership is investing. In 2019, startup Robinhood launched its fractional stock trading on its app to lower investment barriers for potential investors. The feature allows users to trade popular tech stocks like Amazon, which trades around $1,700 USD per share, for as little as $1 USD.

Initiatives such as F-NFTs and fractional trading are bound to open up more democratized financial services, including reinvestment plans and the increasing use of robo-advisers. Although the risks are also higher because of increased exposure, rising consumer demand will encourage startups to focus more on this space.

Implications of fractional ownership

Wider implications of fractional ownership may include: 

• Increased interest and investments in fractional stock trading as individual investors gain more lower-valued ownership of expensive stocks.
• More startups focusing on fractional trading apps with built-in financial advisor chatbots.
• Some brokerage firms embracing the fractional stock trading trend to cater to younger investors.
• Blockchain investors increasingly participating in the fractional ownership of digital assets, particularly art and real estate.
• Public projects with socio-economic causes being co-owned by local community members, such as public housing, solar panel farms, or produce markets.

Questions to comment on

• If you participate in fractional ownership, what are its benefits and limitations?
• How else do you think communal ownership will change how people build wealth?