The human spirit is indomitable and in the same way as nature itself, it will always find a way to overcome what-ever obstacles or hurdles are strewn in its’ path.
The holiday home market has suffered a great deal globally as a result of the credit crisis with the majority of people purchasing holiday homes requiring some degree of bank funding to make their purchase. Take a large chunk of that funding availability away and it’s no surprise that a cor-responding chunk of holiday home property sales go with it.
What has not diminished however is peoples’ desire to own a holiday home or developers desire to sell property, so in the grand tradition of ‘neces-sity being the mother of invention’ a new way has emerged for both parties to get what they want; a clear case of a ‘Win Win’ scenario if I ever saw one.
Fractional Property Ownership
Before explaining what it is and how it works, the first thing I should do is to correct myself. It has not in fact only just emerged as a viable option for owning property. I have long been an advocate of fractional property ownership and different projects and developments have been successfully marketed around the world over the last twenty five years or so, but they have never seemed to break through into the main stream, always stay-ing out on the periphery of the property market, almost like a slightly unpopular cousin.
I think there are a number of reasons why frac-tional property ownership has until now, never been fully embraced and it’s worth taking just a few moments to consider these reasons and look at the reality behind them.
The predominant reason in my view is that up until now, bank finance for purchasing a holi-day home outright has pretty much always been widely available so buyers took the view that if they could secure the funding, they would rather buy outright.
Secondly, but still very much linked to the first point, is that people have tended to think, “I don’t really want to share my holiday home with some-body else” which is fair enough. However, with everything in life being a compromise, these very same people then put their holiday home out to rent for holiday lets’ in order to make the purchase financially viable or just to help out with the costs; either way, they are now sharing their holiday home, thereby making this a mute point.
Thirdly, there has always been a concern that ‘fractional property’ is just a marketing depart-ments’ way of spelling ‘Timeshare’. There is in reality however a significant difference and they should never be confused.
‘Timeshare’ is a ‘Right to use’ product, which means that what you are actually buying, is a right to use certain property, for a certain number of weeks per year for a predefined number of years. You do not actually ‘own’ anything and as anyone who has ever tried to resell their timeshare will testify, it has little or no resale value.
With ‘Fractional Property’ on the other hand, you buy and own a share of a particular property in much the same way that you own your home. The only difference being that you own one hundred percent of your home, whereas you might buy between twenty five percent and twelve and a half percent of a holiday property, depending upon the amount of holiday usage you require.How does it work?
In principal, ownership is very simple and straight-forward although there will ultimately be differ-ences in legal structure, ownership rights and usage options depending upon the resort chosen and independent professional legal advice should be taken before entering into any purchase agree-ment. Most fractional options will offer ownership of high quality holiday property shared between four and twelve people, although some developers will offer as little as two weeks per year packages. There will be a usage calendar in place, usually on a rotational basis, which predetermines when you are eligible to use the property, thereby fairly sharing out high season and low season periods between owners.
The property will come fully furnished and kit-ted out ready for holiday use and should have a professional management company in control to ensure smooth running throughout the year for each owner as they arrive for their allotted holiday time. There will obviously be running costs and management costs which will be shared equally between the owners and you should ensure that these costs are reasonable for the services being provided.
LimitationsWhilst you are ‘an owner’ you are not ‘The’ owner so you do not therefore have the complete flex-ibility that you would enjoy if you were to pur-chase a holiday property outrighfor For more info call 0871 990 3450 (UK) or 0034 928 845 944 (anywhere) Freedom for Sale 19example decide to visit the property whenever you choose or change the furnishings or decoration on a whim.
Also, whilst more and more options are being launched by developers on a regular basis, the choice of property available to purchase is mas-sively limited when compared against outright ownership and due to the fact that the ownership is shared with others, it is not possible to secure any borrowings against the property, meaning either cash or alternative security must be avail-able to you.Clearly then, this type of ownership will not suit everybody but when the limitations are weighed up against the costs involved, it is a compromise that will suit a great many people.
Benefits
Clearly, the greatest benefit is that you can now invest in and own holiday property in a sunshine destination for quite literally a fraction of the cost associated with outright ownership and, as most people would only use their outright ownership for a few weeks per year anyway, this fact alone makes for a compelling argument.A great many people can only justify the costs of outright ownership by renting out their property whilst they are not using it themselves which can entail quite a lot of extra work and time. With the fractional option you would simply buy the amount of time that you want, need and can afford, thereby eliminating the requirement for renting out unwanted time.As an owner you have invested in an asset which, as long as the property market in general is grow-ing in investment terms, will also appreciate in value over time, making it an investment in finan-cial terms as well as a lifestyle investment. If you are in the position whereby you could comfortably afford to purchase a holiday property outright, you could now consider the option of buying multiple fractional ownerships in different locations. This would effectively mean that for the same level of investment, you could own in a choice of locations instead of just one.
Most ownership structures would allow you to rent out any time that you didn’t wish to use personally and the management company would normally even assist you in this, providing even more flexibility and fewer headaches.
Costs
Obviously the costs involved will vary greatly depending on the type of property concerned and the size of share offered. However, options now exist from just a few thousand up to hundreds of thousands. The most important aspect to consider however is the relative value of the share being offered when compared to the cost of outright ownership of the same unit.You are very unlikely to find for example a share being offered which equates to the actual out-right cost of the unit divided by the amount of shares on offer, as there are many additional costs involved on the part of the developer and manage-ment company for running a successful fractional development, but you should ensure that you are not being overcharged.
Exit strategiesHere you will find various options depending on the development in question. Some options will provide ownership for a predetermined number of years with the unit returning to outright owner-ship following this period. This allows for the unit to then be sold as an outright unit with proceeds being shared between the owners.Other options will have no time limit and will allow owners to sell their share on the open market as and when they wish. Bear in mind that some ownership structures consist of setting up a limited company which then buys and owns the property; this means that at the outset you are not in fact buying a share in a property, but rather you are buying shares in a company which will own the property; when exiting the investment, you will then be selling your shares in the company that owns the property as opposed to directly sell-ing your share of the bricks and mortar.The future
Whilst it is very true to say that the current global financial crisis has been the catalyst for fractional property ownership to come into the mainstream, it would be very wrong to consider that this will be a short lived phenomenon. A great many industry experts are predicting that over the coming five to ten years there will be nothing short of an explosion in fractional property ownership.In case you are one of the doubters that think that fractional property sales will never really take off, you may be surprised to learn, that quietly bub-bling along, without any great fanfare or mass public awareness, the worldwide sales of fractional ownership property for 2008 is estimated to have been worth over one billion dollars, with an increase in this number widely predicted for this year.
Conclusion
As stated previously, this option will not suit everyone, but it has incredible appeal and should definitely be considered as a viable alternative to outright ownership if the limitations imposed by the structure are acceptable to you. In fact, to a great many eyes, the issues that we have high-lighted as being limitations, would in fact not be viewed as limitations at all, but rather would be considered major benefits as they automatically overcome what can be seen as drawbacks with traditional ownership.
So, if you are one of the many people out there with the desire to own a holiday home in the sun but find yourself unable to raise the required funding for outright ownership, or for that mat-ter, you are able to raise the funding but unwilling to commit to that level of investment, you now have the perfect alternative. There is nothing so powerful as an idea whose time has come; and fractional property’s time has definitely come and to stay!
