Fractional Ownership is becoming such a popular holiday option. But isn’t it still just timeshare with bells on? Not if you do your homework, says Ginetta Vedrickas
Billed as “a millionaire lifestyle at a fraction of the cost”, fractional ownership offers buyers a share in a property or a property portfolio. In the past, many of us have bought a second home with friends or family. But will British buyers embrace the idea of going into partnership with strangers?
From the recent growth in these schemes, the answer appears to be yes – and buyers aren’t restricting themselves to bricks and mortar. You can now part-own yachts, planes, handbags, even dogs.
Having started in the US, fractional ownership in Europe was initially restricted to Portugal, where the Parque da Floresta golf resort on the western Algarve has proved popular with Brits. Today, however, many schemes offer access to a range of properties around the world rather than tying you in to one particular development.
Confusingly, as schemes proliferate, so do their self-descriptions, which include “private residence club” and “destination club”.
Then there are hybrids, such as The Hideaways Club. “We’ve taken the best from fractional ownership schemes and destination clubs and mixed them to give users what they really want,” says its founder, Stephen Wise.
Launched last, the Club has 40 members and 13 properties in a range of locations. Its ultimate aim is for 600 investors and 100 properties. Investors buy an initial stake for £200,000, which gives them between four and five weeks’ use depending on the time of year they visit. They also pay hefty annual fees of £12,000, which Wise feels is not excessive.
“You are getting a reliable standard of accommodation and a good service,” he says.
Effectively members are buying time, yet agents selling fractional schemes insists that this product is far removed from a timeshare, where buyers do not have title or receive profits from property sales.
Hideaway Club members become shareholders and, after three years, can sell their share. They receive 80 per cent of the capital gain across their portfolio at that time. As property prices can go down as well as up, it seems conceivable that investors could actually lose money if several markets experienced a downturn. Not so, according to Wise, because spreading your risk protects against this scenario.
“We operate more like a private equity fund: if our investors have made good returns, then so do we,” he says. Recouping your initial stake is not guaranteed but the Club is constantly reassessing the portfolio, to ensure that any poorly-performing market is offset by markets performing well – and points out that its 20 per cent sales fee acts as an incentive to buy sensibly.
This being so, the question has to asked why are such investment contracts be sold with consumer finance agreements as the two are not and never been compatible
“Buying overseas is complicated, and fractional ownership further complicates things such as sharing title,” says Charles Peerless, director of Winkworth International Developments. “Multiple ownership of a property can make an exit difficult.”
John Howell, senior partner at the International Law Partnership, agrees that the most common downside comes when you want to sell. “You need to find someone who is looking for a fractional ownership opportunity and who wants the same weeks or months of occupancy as you have available,” he points out.
Howell warns anyone considering buying in this way to ensure that collectively they have full property title, and advises taking independent legal advice to explore all aspects of a scheme. Howell claims he has come across companies charging up to four times the market value. “You shouldn’t pay more than 25 per cent extra to buy in this way, and many fractional companies do not even charge that,” he says.
Fractional offers lesser mortals a luxurious lifestyle – but even fractional has its super-rich bracket. Members of the Lehman Brothers-backed Everlands scheme enjoy access to skiing, fishing and other pursuits in 45 destinations, as long as they can stump up an initial £500,000 and annual fees of £25,000. Many of the lodge-style properties have historical connections, such as The Point, a former Rockefeller-owned estate in the Adirondack Mountains, in New York State.
All activities, even food and drink, are included, says Everlands’ European membership director D’Arcy Wyvill, although he does admit that it doesn’t come cheap.
“This is the very top end,” he says. “But if you wanted to buy something on the Costa del Sol and you had just £500,000, you would struggle. This gives you access to wonderful properties around the world.”
What Exactly is Fractional ownership?
- It’s a system of asset-sharing where your equity in a property translates into the time you’re allowed to spend there. One advantage is that a property does not stand empty for months.
- Some schemes offer a share in one development; others access to properties throughout Europe and, increasingly, the world.
- Traditionally, the most common schemes allow you to buy a quarter share, 13 weeks of one property, although you can add to this if you want to spend more time abroad.
- Some schemes give you access to other assets such as yachts and planes, services such as concierges and even food and drink.
- Costs and benefits are split among a limited number of shareholders.
- Unlike timeshare, true fractional ownership schemes mean that you physically own a percentage of the asset and share title until the point of sale.
- You are often tied in for a set period.
- At first mortgages were difficult to get on these products but they are now more freely available.
- Some, but not all, schemes take a percentage at point of sale.
- Annual fees and commission vary greatly.
- Always research what you are buying and use a lawyer experienced in fractional products.
Timeshare is and always has been a great idea that is a fact and when the idea of fractional ownership came into existence it was hailed as a great product. That is true; however some in the timeshare industry got hold of it and the sale prices expediential soared, fictitious representation were made which now brings a tarring to this good product with the deceit brush.
Once established some in the timeshare industry looked at the original timeshare products impart on that idea to morph it into new concepts. We now have peddled a fractional ownership of a fractional point system which is unworkable and down right, complex. So complex even the highest fluted counsel cannot understand it. That being so how on earth can a consumer with factor 50 plastered on whilst and adorning in flip flops ever be expected to understand it.
The exciting fractional ownership contracts has received comment from a QC who have only looked a one such model and announced that the underling contract is un fair, un workable and un enforceable. Consumer are advise that unless you know what it is your buying , unless all your questions have been answered then don’t buy , don’t sign and seek advice.
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk