What is Fractional Ownership
Fractional ownership enables people to own an interest in a luxury property (often in an exclusive holiday resort or glamorous city centre location) that they might otherwise be unable to afford. It is equally attractive to those who can afford to purchase property outright, but do not have the time to use or maintain it all year round.
It is commonly sold in anything from quarter to one twelfth shares, with periods of the year being allocated on either a rotational basis or a mixture of fixed and floating periods within a season. As well as having all the benefits of a management company to take care of the property, Fractional Owners usually have a direct interest in the value of the asset and are likely to benefit from any appreciation in the property value, although this may not always be the case.
Extremely successful in the US, the concept is increasing in popularity in Europe - the number of residences increased from 60 to 90 in 2008/9 and it is anticipated that there will be substantial growth of the market over the next 5 years.
It is, however, not just confined to real estate. Luxury Yachts, Prestige Cars and Private Jets are just some of the other luxury products that are available under fractional ownership schemes.
Length of schemes
Fractional ownership is more akin to real estate and short term leases tend not to be offered. Some schemes are freehold, others have leases of, say, 50 or 99 years.
Do fractional residences retain their value?
It is too early to tell in Europe as the fractional market is relatively new, but in the US they track local property values.
Do fractional operators offer a cooling off period?
The majority follow the Timeshare Directive and offer a minimum 10 day cooling off period.
How much does a fractional residence cost?
The average in Europe is between €100,000 and €200,000 although mid market developments cost from as little as around €25,000.
What are the management fees?
They vary from between 2% – 4%, ie from around €2,500 upwards to €15,000. The amount will depend on the facilities available on site.
Can purchasers get finance?
It is possible to obtain an unsecured loan of up to £50,000.
How are fractional residences protected?
A common structure is through a trust scheme.
Flexibility of the product
Owners can book their allocation up to 12 months in advance (in some cases it can be longer) but, can make last minute changes for a small fee. It is also possible to rent your property out - the managing company will organise the let and take a share of the revenue, leaving you typically with around 60 per cent of the rental income after cost.
Do the exchange companies offer exchange?
Group RCI through The Registry Collection, Interval International, and Preferred Residences offer a fractional exchange service.
What should purchaser look for before buying?
- Check the track record of the developer
- Review the quality of the resort and the amenities available – is it right for you?
- Ensure you’ve read the sales agreement carefully and understand the legal structure, what you are liable to pay and what the management fees are
- Is the resort affiliated to an exchange company?
- Find out what additional services the fractional ownership covers (eg. car rental, airport pick up / drop off) and whether this involves an additional fee
- What other properties, if any, are available within the company’s portfolio?
- Find out how the bookings system works, particularly during peak periods
- Check that you are offered a cooling off period in writing