A home abroad or a passport to holiday bliss?
Developers are offering partial ownership as a way to move properties despite the credit crunch. Alessia Horwich investigates.
Sunday 03 May 2009
A second property may seem like a mirage as the once fertile housing market turns to desert, but the fractional ownership industry is defying the trend, and having a share of a foreign home is more than ever a reality.
Globally, the industry is worth an estimated $1.8bn (£1.2bn) and the amount of fractional ownership projects under construction in Europe has risen from 60 to more than 90 in the past year alone. It's being plugged as a great investment and a way to ditch the financial burden of owning a second home outright, but is it too good to be true?
Fractional ownership does what it says on the tin. You purchase a fraction of the property, between one quarter and 1/25th, and this entitles you to stay there for a set amount of time each year. For example, buying an eighth of a property will get you six weeks' residency. It is similar to a timeshare scheme. However, the advantage fractional ownership has over timeshare is that you are buying a share in the property which you can sell on, as and when you wish.
The purchase price for a timeshare is a cost that you can rarely recoup, yet a fractional ownership share will track local property values and can be sold to regain the initial funds invested. Nick Turner, vice president of The Registry Collection, a fractional ownership scheme, says: "People in Europe and particularly in Britain are not interested in timeshare because they want to own something. The equity piece is the key. People feel reassured and secure if they know their names are on the deeds of a property."
Fractional ownership has kept going despite the slump in property markets in many parts of the globe. Developers abroad are working hard to shift their units and fractional ownership is another way to package a property sale. Piers Brown, spokesman for the Fractional and Shared Ownership Trade Association, says: "With the lack of finance available on whole ownership, the developers think that fractional is the answer to their prayers. It lowers the price point and opens up the marketplace."
As well as investment potential, fractional ownership comes with other benefits. The main perk of many projects is their exchange programmes. These enable you to buy a fraction of one property, but if you decide you don't want to spend your full time allocation there, you can exchange a few weeks for a stay at another resort. So, although you are buying a share in the freehold for a property in one country, you get access to properties around the world.
Another added bonus is membership of a fractional ownership club that often comes as part of the purchase price. Services on offer to members include 24-hour concierge, airport lounge access and a personalised travel service, as well as discounts with preferred travel and leisure partners. Fractional ownership also offers a certain amount of flexibility. You can book your allocation up to 12 months in advance, but, at the same time, chopping and changing holiday dates and locations is perfectly acceptable and only incurs small charges if it is done at the last minute. Also, if for any reason you don't take up your full allocation of holiday time, you can rent the 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 costs.
Traditionally, fractional ownership had been exclusively for high net-worth individuals who already had a second home and wanted an extra investment opportunity. The majority of properties were valued at £1m or more and therefore were only accessible to those with high incomes. However, as developers expand the types of properties they make available for fractional ownership, the prices have become more varied. Today, buy-ins can be as little as £20,000, while the average sits between £100,000 and £400,000. These prices are more attainable and provide a convenient alternative for those who are trading down from full ownership of a second or holiday home. These people can sell up and use the cash to buy the fractional ownership outright, allowing them to enjoy having a holiday home without any mortgage payments. For those without a second home to sell, there are virtually no financing options for the purchase of fractional ownership properties. The only real opportunity is to raise the cash by remortgaging your UK property.
David Hollingworth of mortgage broker London & Country says: "Buying a second property would generally be deemed an acceptable reason for remortgaging as long as you retain a fairly low loan to value [LTV], say around 60 per cent. With interest rates still low, it's a fairly cheap way of borrowing compared to a personal loan. There are just a few more hoops to jump through to get the cash."
One important factor that affects purchase price is the location of the property, which will be priced in the local currency. The weak position of the pound at the moment means that buying outside the eurozone or the US offers much better value for money, and, because the exchange schemes allow you to stay wherever you want, tactically buying a property outside the eurozone or US right now could make sense; popular locations to buy include Croatia and South Africa, home to the 2010 World Cup.
Mr Turner notes: "People buy fractional ownerships sometimes with a view of never going back to the resort in which they bought it, but instead to travel around the world staying in five-star resorts. Ultimately, it allows you to use your second home purchase as a currency."
The purchase price is not the only cost you have to consider. As with a time-share property, fractional ownership incurs annual maintenance costs. These can be anything from 2 to 4 per cent, on average between £5,000 and £15,000 per year depending on the value of the property. Mr Brown says: "Fees are one of the big decisions associated with fractional ownership. When people realise what they get for their money – security, maintenance, concierge and all other five-star services – then it's perhaps still a consideration, but not so much a deal breaker."
As a fractional owner you are also expected to pay your share of the utility bills and any local residential taxes. These are averaged out and the cost is shared between all the property's part owners. You are responsible for meeting these costs even when you rent out your property.
These costs are not insignificant and although letting the property is a way to make some quick cash, after commission and the cost of utilities your rental income is significantly reduced. However, there should not be any hidden costs. As with any other property purchase, it is always advisable to seek qualified legal advice.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Bill Cosby: Isn’t it obvious why his accusers have stayed silent up until now?
- 4 Halle Berry takes ex-boyfriend Gabriel Aubry to court for allegedly trying to make daughter look less African-American
- 5 Isis propaganda image showing 'abuse of Muslim woman by soldiers' is actually taken from Hungarian porn film
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Revealed: How the world gets rich – from privatising British public services
Exclusive: UK approved £7m Israeli arms sales in six months before Gaza conflict
iJobs Money & Business
£Attractive: Citifocus Ltd: High calibre individual with significant product d...
£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...
£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...
£Attractive: Citifocus Ltd: High calibre individual with superior academics an...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens