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Fractional Ownership: A Property Portfolio For All Seasons?
Spring on the Algarve, summer at the Turkish coast, autumn in Tuscany, winter on the slopes in Switzerland – no wonder 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 year, 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.
The reasons for buying into countries with potentially strong growth would seem obvious. But, equally, investors will want to choose somewhere they actually like to visit.
In Hideaway’s current portfolio, all properties are worth around £1 million, all come fully equipped down to iPods and plasma screens and have at least four bedrooms and, so far, all are within a four-hour plane journey. Traditional favourites include Majorca and Tuscany with up-and-coming Marrakesh, Turkey and Croatia not far behind. New additions are likely to include Oman, South Africa and Mauritius, for winter sun, and apartments in Paris and Barcelona are being considered along with Devon and Cornwall.
Hideaways Club member Wendy Smith, 56, a garden designer from Kent, believes it offers value. “If you rented a large, high-quality villa for five weeks a year, the cost would be comparable,” she says, “and this way you guarantee that the standard you get is just as good as home.”
So far, Wendy and husband Nigel, 57, a headhunter, have holidayed in Provence (”my personal favourite”), Majorca and Kalkan in Turkey. They find that club membership is broadening their horizons: “Turkey is not somewhere we’d have chosen, that’s the furthest east we’ve been in the Med, but we loved it.”
The Smiths also own a villa in Portugal, which they bought in 1999. “We love our Portuguese house but there’s always something which needs doing,” she points out. With children aged from 15 to 26, Smith feels that membership is one way of guaranteeing family holidays. “It’s more exciting if we can just ring around and say, ‘We’re off to Morocco, fancy coming with us?’”
Having bought for personal use as well as investment, the Smiths are in it for the long term. “We have no plans to sell,” she says. “As the club adds properties to its portfolio, it’s increasingly tempting to stay and try them out. But we hope for a good return when we do sell – and, unlike stocks and shares, this way we get to use our investment.”
Not everyone is so convinced by fractional. A common criticism is that buyers pay over the odds for a part share because the agent has to market and sell each property several times (to the various stakeholders) rather than just once.
“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.
Piers Brown, who runs the fractional website www.fractionallife.com, is organising the second annual Fractional Life Expo at the Broadgate in the City of London on April 28-30. He says the key to a good product lies in its transparency. “Compare the cost of a whole unit with the cost of part shares,” he advises. “There should only be a small difference to allow for extra costs.”
Companies which do not offer shared title but which market themselves as “ownership schemes” will have to change, he adds, “as the public don’t want them.”
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.
Source: http://www.telegraph.co.uk/
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