AUGUST 2010 |
www.opp.org.uk
FRACTIONAL Developer profi le
BUSINESS Fractional report | 45
drive-to or at the end of a plentiful short-haul fl ight schedule. Do not go off the beaten track.
Here are some key stumbling blocks: • Finance. Depending on the legal structure in the host country, shared ownership may struggle to be categorised as an asset class by the local fi nance community. There is no easy way round this and consumer mortgages are still as tight as ever to get. Developers who can provide their own fi nance will win. For instance, in North America there used to be fi ve companies offering mortgage products for fractional. Now there are none. Fractional credit is likely to be diffi cult to obtain for another two years or more. Developers need to be prepared to offer 3-year loan packages that can be refi nanced when the market returns. • Access.
Whilst the increase in
tourism has been dramatic there are relatively few direct and easy drive-to routes from European capitals. This is a prime driver of the purchase decision. • Complicated Sell. There is a real need to make the details of shared ownership easy to understand. The new EU Timeshare Directive covers all forms of shared ownerships; in particular the taking of deposits and giving consumers a cooling off period of 14 days. The need for full
disclosure, transparency and openness will be increasingly required. • Training agents. Fractional is complicated and agents need to feel confident. • Maintenance fees and rentals.
Typically maintenance fees vary from 1% (fractional) through to 4% (PRC). Home Owner Association fees vary from €1,500 (fractional) to €10,000.00 (PRC). Consumers are increasingly wary of low maintenance costs and high rental income.
“Many fractional projects are looking at the use of a ‘social architect’ for a range of activities.”
And once you have got them … how do you keep your buyers happy? Because many of these fractional offerings are going to appeal to the well-heeled retirement community, many fractional projects are looking at the use of a “Social Architect” who takes responsibility for a range of activities throughout the year. Luca Franco, president of Luxury Leisure Properties International LLC, is a fi rm believer in this sort of bespoke detail. “The secret is in the customisation knowing not just
every need, want and aspirational desire of the target market but also the depth of the purchasing group,” he says. “This approach will determine everything including the usage plan, reservation system, amenities, accommodation, operations, price and much more.” Research from The Futures Company into the next generation of customers predicts a “cautious and risk-averse clientele, happy to take personal responsibility for its actions.” The entire concept of ‘ownership’ is being redefi ned. Are we moving towards the point where people will only want to ‘own’ what they need and use regularly? Cars, boats and property all seem to respond to the benefi ts of the shared ownership model.
So … how will your development stand out? It is highly likely that the successful fractional scheme will offer about 25 to 30 units (so, don’t overdo it) for direct sale to end-users. And the best projects will be attached to a 5-star branded hotel.
There could be a similar volume of investment / institutional sales with 25-30 units going to fi nance buyers … probably the bigger pension funds. Make sure you can offer an entire legal suite of documentation covering
the A-Z of shared
ownership. Detail the usage,
rental, maintenance, re-sale, and tax (purchase, capital gains and rental) implications of buying a fractional. Make your customers feel confi dent that going fractional is a good idea with a set of documents that has been thoroughly researched and very well prepared indeed.
Leading contributors:
• Luca Franco, president of Luxury Leisure Properties International LLC. • Richard Ragatz, founder of Ragatz Associates. • Claude Attala, global managing director of Northcourse Advisory Services Group RCI. • Darren Ettridge, VP of Resort Sales and Services EMEA Interval International. • Miguel Ruano, lead associate of the Hotel Solutions Partnership.
There are various fractional sessions at the OPPLive conference in October. Please visit www.
propertyinvestor.co.uk/london/ for more details.
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