Sunny & SharePosted on: 11 June 2009 by Gareth Hargreaves
Positioned as a luxury-for-less alternative to the high cost of a second house purchase, fractional ownership has come into its own in the recessionary climate. But is it too good to be true?
In the first of a new series on ‘buy-wise’ investments, 50connect’s resident property expert, Laura Henderson examines the perks and pitfalls of shared ownership.
Credit crunch fever may be wreaking havoc with our savings, but our appetite for buying abroad remains strong. The question is how to make it more affordable.
Long associated with the ultimate in luxury acquisitions, namely private yachts and jet aircraft - fractional ownership is now carving out a discrete niche in the ‘lifestyle’ real estate market, pitching a compelling combination of high-ticket housing for a conservative outlay. Cutting its teeth Stateside in the 90’s in master-planned communities like Aspen in Colorado, the market has since stratified to a wider sphere of private residence clubs and high-end resorts in Europe, Latin America and the Caribbean, where recreational real estate accounts for a large portion of foreign exchange earnings.
“Fractionals, unlike ‘vacation time only’ timeshare, confer a deeded interest and equity share in a managed property,” explains Brad Lincoln of the Best Group, “in short, all the benefits of a holiday home for several weeks a year, but bought in partnership with others who bear the costs with you.” Typical buyers, he adds, will probably have toyed with the idea of purchasing a second home outright, but ruled it out in light of likely limited use and high overheads:
“For many, it’s the perfect middle ground solution-a share in a valuable asset, with a third party to manage the maintenance and upkeep side of things.”
Balancing exclusivity with time-tested usage, standard ownership configurations can lie anywhere between 4 and 13; the number of shares offered, principally a function of the amount of prime time that can be guaranteed. “Properties with a relatively short prime season will generally offer fewer shares,” explains Jerry Cobb, CEO of the Fractional Ownership Consultancy (www.fractional.net) “with a float time during the least popular months. Full rights of ownership, including selling to others, renting, and buying additional fractional shares is standard, as is a fraction becoming part of an owner’s portfolio of heritable wealth.”
Owners can also swap weeks between themselves or rent out their allocated period privately, with vacation exchange opportunities often available, although this is usually regarded as more of an ‘add-on’ benefit and not the primary reason for the purchase.
“Off-plan investors may also find fractional ownership a beneficial means of releasing invested equity sooner by selling fractional shares in their property,” Cobb adds, “whilst at the same time retaining a fraction for their own use or for rental purposes.”
Buyers considering investment have two legally approved purchase formats open to them; setting up a limited company in which each owner owns a percentage of the shares in the company (more common with five+ owners), or drawing up of a deed of co-ownership with individual names placed on the title deed.
“An annex document in both cases outlines owners’ rights to certain weeks a year based on high/low season distribution,” explains Lincoln, “with upkeep of the property the responsibility of the resort’s elected management company written into the deed of co-ownership.”
Maintenance fees vary widely by resort with a benchmark of between £2,000-£4,000 per property per annum plus a contribution to a ‘sinking fund’ to cover incidental expenses which roughly equates to 10 per cent of the annual maintenance fee. So, you’ll still have to contribute as an owner, but not nearly as much as a sole proprietor.
“There’s a certain comfort in knowing that the risks are shared out,” says Stephen Wakeling, who recently bought through the Best Group, investing £100,000 in a fifth share of an apartment in Villas on the Green in St Lucia: “The biggest benefit is being able to match your purchase with your expected use of a property. I have ten weeks a year spread between high and shoulder seasons, which is more than adequate. The company also manages the rental side of things with a minimum 5 per cent return guaranteed for the first two years, and similar projections for ensuing years.”
As to investors thinking of going it alone, Wakeling sounds a note of caution: “I know people who have talked about a D.I.Y. version, but I wouldn’t even entertain the idea. The penalties for getting it wrong are punitive from a tax and legal perspective, plus there’s the issue of planning a workable exit strategy-selling shares in a property is much more complex than a straightforward re-sale, with share promotion legalities and transfer duty issues to take into account. Always go with a specialist firm. That way you’ll have peace of mind alongside those blue skies.”
- Focus on quality-property size, use-structure, resort amenities and value-added extras that come with ownership. Project density should also be appropriate for the area.
- Ensure that all ‘on costs’-property taxes, insurance, and maintenance are budgeted for and written into the deed of co-ownership contract and that a full property management service is included in your purchase.
- Multiple ownership tax issues can be complex so take advice from a specialist lawyer. Buyers should also have contracts checked to ensure clean and legal title, an equitable stake in the property and no restrictions to selling shares on the open market.
- Research the market - buying a quarter share of a well-located high-end property can often yield better capital appreciation than an outright purchase in a similar price-bracket.
- FOC Finance, a subsidiary of the Fractional Ownership Consultancy, is the only company currently offering finance for fractional purchases. Purchasers usually have to borrow on the equity in their main residence.
- Prices vary based on the size, amenities and location of the individual property and start from as little as £50,000 plus annual fees to upwards of £250,000.
- The purchase process can take the form of a limited company set up in which each owner owns a percentage of the shares in the company (more common with five+ owners). Alternately a deed of co-ownership can be set up with individual names placed on the title deed.
- An annex document outlines owners’ rights to certain weeks a year based on high/low season distribution.
- Maintenance fees vary per resort with a benchmark of between £1,000-£3,000 per property per annum. A contribution to a ‘sinking fund’ to cover incidental expenses is standard. This usually equates to 10 per cent of the annual maintenance fee.
- Upkeep of the property is the responsibility of the resort’s elected management company and is written into the deed of co-ownership.
Three Of The Best
Focusing 100% on the pleasure principle, Scotland’s most celebrated hotel has given a prestige twist to seasonal ownership with Glenmor-a development of 53 ‘Scottish village’ style holiday homes located within the grounds of the 850-acre estate.
For a one-off fee plus annual service charge, investors can purchase one or multiple annual weeks in a two, three or four-bedroom home for 50 years. Award-winning interior designer Amanda Rosa has micro-managed home-style comforts with everything from mood lighting in the bathrooms to under-floor heating and chaises longues by the fire.
Owners and guests have unlimited access to Gleneagles leisure facilities including shooting, riding and fishing as well as the Golf Academy and three championship courses, the grandest of which is being remodelled in time for the Ryder Cup in 2014. Activities catering to younger guests include junior falconry and off-road driving in custom-designed mini land rovers.
Prices range from £10,030 for a three-bed home in Winter Break season up to £48,345 for a four-bed over summer. Service charges in the region of £1,000 a year cover housekeeping, maintenance and future refurbishment. Owners can also rent out their week privately or join the Glenmor managed rental pool. www.gleneagles.com/glenmor
Tuscany-Borgo di Vagli
Endorsement from a best-selling author can’t be a bad thing. No less than an authority on la bella vita than Frances Mayes of Under the Tuscan Sun fame, has given an enthusiastic thumbs up to the restoration of a 14th century hamlet in deepest Tuscany. She’s talking from experience.
Italian architect Fulvio Di Rosa, the man responsible for renovating her secluded 13th century writing retreat Casa Fonte delle Foglie, has been working his magic once again, only this time on an dilapidated hilltop hamlet. Hidden away in deep forest some 20 minutes from the Etruscan town of Cortona, Borgo di Vagli has been painstakingly restored into a community of homey one and two-bed cottages.
Residences come fully furnished, with a mix of modern Italian upholstery, pitch-perfect country antiques and fittings sourced locally including carved stone sinks, copper cooking utensils and hand-painted cabinetry. Modern conveniences haven’t been overlooked either, with high-speed Internet access and flat screen satellite television in every home.
Prices based on a 1/10th share start from *£54,000 for a one-bed up to *£82,500 for a two-bedroom property. Access is flexible, booking options ranging from “planned”, allowing 21 days advance reservation for the following year, “space available” for stays of up to one week through to “short notice” bookings, whereby an additional week’s stay (subject to availability) can be booked any time within 14 days of the scheduled arrival date.
Annual management fees of *£1,700 for a one-bed property and *£2,150 for a two-bed, cover maintenance, refurbishment, utility costs, taxes and upkeep of communal areas, with housekeeping charged as per owner usage. www.clubborgodivagli.com *based on XE.com current Euro exchange rate
St Lucia-Villas on the Green
Spread across seventeen acres of prime real estate with fairway views over St Lucia Golf Club, Villas on the Green offers ‘Country Estate’ style living with beach haven Cas-en-Bas just a pebble’s throw away. Townhouses have been built to exacting standards and the entire development is beautifully landscaped - on-site facilities include a state-of-the-art fitness centre, Olympic sized-pool and theatre.
Two and three-bed luxury townhouses boast spacious living quarters and large terrace/patios, which open onto the golf course. Exterior finishes feature coral stone accents, bathrooms are finished in marble while the kitchens come fully equipped with modern appliances and stylish granite countertops.
Two-bed, two-bath townhouses based on a 1/5th share start from $170,000 (approx £102,000) rising to $200,000 (approx £120,000) for a three-bed three-bath option. Annual management fees are in the region of £3,000 with an annual rental guarantee of between £2,850 and £3,250 for the first two years, in return for eight-weeks’ annual allocation to a rental pool. www.thebestgrp.com.
By Laura Henderson
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