Fractional Ownership Explained
Fractional Ownership is the buying of a property by several independent investors. Typically the freehold of a property will be split into quarter shares, 6th, 8th, 10th or 12th shares. So if you were to purchase a quarter share then you would be able to use the property for up to 12 weeks each year and you would pay a quarter of all maintenance costs. Owners of 8th shares would be able to use the property for 6 weeks each year.
Fractional ownership suits the followong types of buyer:
- Those who want to purchase an overseas property but can’t afford it
- Those who are interested in buying overseas but want to experience the resort or location before committing
to whole ownership
- Those who would like to invest in a number of different countries or resorts to reduce their financial
commitment in a single country
- Those who could afford whole ownership but do not feel it makes financial sense.
- Those who could afford a cheaper apartment but really want to own a large villa
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The fractional ownership market emerged as an ideal investment in the USA in the early 1990’s because it allowed investors to partially own luxurious properties in wonderful destinations at a low price and with no maintenance responsibilities. For example, a three-bedroom Villa in Tuscany, a popular fractional ownership destination, may cost over €500,000 to purchase outright but an investor who is interested in guaranteeing a first class holiday experience and hopeful that the Villa will appreciate over the long-term, may only have to pay less than €80,000, plus annual fees of approximately €1,000 to cover maintenance and services costs. Today the Fractional market in the USA is worth over $2.8 billion a year and rising.
The Fractional market in Europe is also growing at a remarkable rate albeit it is some 9 years behind the USA market. The main advantage that fractional owners have over second homeowners is that fractional owners only pay for what they want to use. Recent research has shown that the typical holiday home owner uses their property for no more than four to five weeks a year. The rest of the year, it sits empty, accumulating maintenance fees, taxes and repair costs. These days in Europe, most Fractional developers ally themselves to one or other of the high end property exchange organizations thus allowing owners to holiday in a different part of the world as and when they wish to. Service levels with Fractions are very much at the 5 Star level and include chauffeur driven vehicles to meet owners at their arrival airport, pre-ordered groceries purchased and stocked in the property, a concierge service that will do everything from booking restaurant tables, theatre seats and anything else that will improve the visit experience. It is possible for the owner order ahead so that on arrival they are presented with
their chosen program of activities.
An advantage fractional ownerships have over timeshare is that owners receive a deed for their fraction of the property, allotting them a share in the property’s equity. With fractional ownership, you’re able to share in any profits the property makes due to appreciation, just as a second homeowner would. Recent research has shown that 75 percent of a timeshare investor’s money goes toward the timeshare company’s administration, marketing and sales efforts, meaning only a quarter of these funds actually go toward the property. This is much different from Fractional Ownership where the purchaser has to opportunity to benefit from the growth in property value.
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