1 PLANNING YOUR PURCHASE
WHAT TO BUY –
IS THE TIME RIPE FOR FRACTIONAL? O
wning an overseas holiday property is an expensive business, involving maintaining and managing it from afar – or paying someone else to do it for you – even though you might
not be able to get there to enjoy it for more than a few weeks a year. So in these cash-strapped times, when most
of us are especially wary about investing all our savings in one place, surely fractional ownership is a great solution? Fractional ownership allows you to own a share
– or fraction – of the property that equates to a set number of weeks usage per year. The idea has worked well in the aircraft, yachts
and motoring sectors – all “luxury” products like holiday homes that most people can only enjoy for a proportion of their hectic lives. Of course it also means that people can afford
to “own” something they would not be able to afford in its entirety, thus opening up a “luxury” lifestyle to them. That’s all well and good, but fractional ownership
in overseas property has suffered from being tarnished with the same brush as timeshare. In timeshare schemes – so popular then so
exploited in Spain during the 1980s - you don’t own a share of the underlying asset, you only buy time periods of usage, say two weeks a year for twenty-fi ve years. Fractional schemes do differ, you generally own a
share of the property’s freehold, thus having a stake in an appreciating asset (if property prices are going up, not down, that is). You essentially pay for a share, such as a tenth,
and the cost will be the proportionate share of the property’s value, such as £50k of a £500k villa – roughly (there is always a mark-up from the developer for admin/management costs). The key to the success of fractional schemes is their fi nancial backing and management, so you
really must do your research on this subject, and consider getting advice from a legal expert who has specialist knowledge of the fractional sector. If fractional schemes do fail it’s because of poor
management and their inability to sustain occupancy levels – a need for high levels means that fractional schemes tend to be found in areas with good year- round appeal: tourist hotspots such as Tuscany, city-break destinations, golfi ng regions such as the Algarve – or the USA. In North America, the fractional home market is
most highly evolved, and varies from several parties co-owning a recreational home (such as a ski chalet or golfi ng apartment) to more formalised forms of co-ownership in a resort property. Whilst the informal type of fractional ownership
is of course prone to disputes between owners, they will not come with the fees required to run resort or developer-managed schemes. However a well-run management scheme should be effi cient and make your ownership trouble-free. But someone’s got to pay for a more complex
(and thus potentially problematical) form of ownership so investigate what this premium really equates to, what the running costs are and whether it is as cost-effective as it appears to be. One downside is that you will have no control
over the décor/upkeep of the property, but that can also be seen as a plus for those seeking a hands-free investment. Finally, as always, consider your exit strategy.
How easy is it to sell on your fraction? Are there any contractual restrictions on how and when you can sell? It’s still early days for many European fractional
schemes so happy-ever-after stories of buyers selling on their fractions are hard to locate, yet this in itself is perhaps evidence that contented buyers haven’t been in a rush to sell yet. Do your own research and try to speak to other investors so you too can make an informed choice.
FRACTIONAL QUESTIONS YOU MUST ASK…
What exactly will I
actually be owning and how much control over it will I have? What will be the
monthly running costs/ service charges? Will the management
be effective enough to ensure good occupancy levels? What will be my
exit strategy? Fractional is typically much more attractive to lifestyle buyers than pure investors, but it’s still important to fi nd how and when you can sell the fraction.
AIPP CONSUMER GUIDE 13
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