HOW TO BUY - Target Markets- Global Property Investment

WHAT TO BUY –
IS THE TIME RIPE FOR FRACTIONAL?
wning an overseas holiday property
is an expensive business, involving
maintaining and managing it from
O 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 yearround
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.
1 PLANNING YOUR PURCHASE
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 10