Fractional ownership – an idyll or trouble in paradise?
It’s an alternative to owning a holiday home, but the weather is a factor
Saturday 24 August 2013
It sounds idyllic: five weeks of almost guaranteed warm weather in a large house every years, with no hassles over maintenance.
Such are the promises of the holiday home ownership system known as fractional ownership (FO) – but does it make financial sense?
It works like this: a buyer purchases a stake in a property for a set number of weeks. This is typically four or five weeks per year, meaning a property may be sold in 10 to 13 “shares”.
Most schemes oblige people to use their shares at different times of the year (often one week per season) to ensure each owner has a chance of enjoying the best weather, fitting in with school holidays, a winter break and so on.
Most of the world’s FO schemes are in Florida and the Caribbean – where weather makes all seasons of the year popular with buyers – but there are some in southern Europe and a number at European golf courses where players enjoy winter rounds as much as summer.
The FO properties are typically managed by the owners of the resort in which they are located and, depending on terms and conditions, buyers may let out their shares informally to friends or on a commercial basis.
And because you own a share of the property, you also share in its financial fate if it appreciates or depreciates.
Some FO schemes have additional regulations. If there are several identical properties, all sold on a fractional basis, individual buyers may not be entitled to use the same property for each holiday; instead, they may be allocated any one of a number of similar units.
“The recession has helped. People realise this is a great alternative to buying a holiday home outright,” claims Dawn Cavanagh-Hobbs, who runs a fractional scheme, Appassionata, at Le Marche in Italy.
“They know they’re realistically only going to use it for about five weeks each year and the thought of all the maintenance being taken care of in their absence and running cost shared between co-owners is very appealing.”
Appassionata offers one-10th shares in each of two large five-bedroom properties on an estate, priced at £105,000 and £185,000. Ownership gives buyers exclusive use of one of the properties for five weeks per year.
Buyers also get access to five acres of landscaped gardens with views across the Adriatic Sea, plus an all-weather tennis court and pool. In addition, they are entitled to some of the olive oil, lavender oil and truffles produced on the estate, and to five per cent of wine production – 1,600 bottles in total last year, expected to eventually increase to 5,000 bottles.
This year’s service charge for the one-10th share is £3,100 or £3,800, depending on which of the two properties you buy into.
There are smaller homes available at most other FO schemes, such as Borgo di Vagli in Tuscany. This is a 14th century medieval hamlet which has four one-bedroom and six two-bedroom units which can be purchased in one-10th, one-15th or one-20th shares.
The scheme boasts a swimming pool, on-site small market selling its own olive oil, walking trails and a trattoria.
A one-10th share in a one-bedroom apartment there is £64,300 rising to £102,000 for a two-bed unit. Service charges this year are £1,990 and £2,520 respectively.
This sounds perfect, at least for those who can afford it, but FO is not without its problems.
Firstly, it has had to shed its association in the minds of some with the much-hated and often mis-sold time share schemes of the past.
It has also had to distance itself from so-called destination clubs – these offer members the right to stay in a range of properties, sometimes in different countries, but do not include any form of actual ownership.
Secondly, buyers of perfectly legitimate and good-quality FO homes may nonetheless find it hard to secure a mortgage if they cannot afford to buy a share in cash.
“It’s not viable to get a mortgage as multiple buyers of one property mean lenders can’t take security on it,” explains Jonathan Harris of mortgage broker Anderson Harris. “The fact that many of these schemes are overseas only makes lenders even more reluctant.”
A third problem is that the FO resale market is an unknown quantity. FO operators push heavily the “willing” of shares to relatives when an owner passes away – this appears in many schemes’ websites and brochures.
However, most schemes accept that owners will want to sell, although there is no guarantee that a share will retain its value, even if good economic times.
Owners “can request an on-site representative to broker a sale, hire an independent broker or sell privately”, says Borgo di Vagli’s Lee Cogher.
The third question mark is whether FO actually represents good value. In many cases the cost of a share is similar to or even greater than a large deposit on a holiday home in the same area: the former offers the convenience of a managed property for five weeks a year while the latter requires a buyer to maintain it themselves, but with the possibility of capital appreciation plus rental income if the property is let out when not used by the owners.
However, for those who don’t want the financial or practical burden of a traditional second property, FO schemes really are a no-hassle way of enjoying a holiday home in the sun.
Many schemes even have links with other fractional resorts in other parts of the world, thereby allowing owners to swap shares at their “home” resort for time at other participating schemes.
Idyllic? Of course. But the one uncontrollable element is the weather. Which is why, perhaps, there are very few successful FO schemes in the UK.
‘The share translates to five to six weeks per year, although you can get extra time
Jeremy and Pat Bilham from Dorset have a one-10th share in a two-bedroom property at Borgo di Vagli in rural Tuscany, for which they paid £52,500 five years ago.
“The share translates to five to six weeks per year, although you can get extra time or rent spare accommodation,” says Jeremy, a retiree.
“You can be allocated any one of the six, two-bedroom properties.
“We therefore cannot leave things in place but there is a local storage facility so you can leave clothes and a few belongings.” The service charge covers communal gardening and swimming pool maintenance, the cleaning of the properties twice weekly and the provision of toiletries and towels.
The Bilhams visit several times a year, although there is a village rule preventing stays of longer than three successive weeks to ensure fair access for all owners.
Independent Partners: See how much you could save by switching credit cards. Compare now
Geoffrey Macnab does not like the comedian's big screen debut
Look beyond the usual shows for the best festive telly
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
The battle for control of Stieg Larsson's £30m legacy
- 1 Sun will 'flip upside down' within weeks, says Nasa
- 2 Christmas comes early: Justin Bieber is 'retiring from music'
- 3 Iain Duncan Smith leaves Commons food banks debate early
- 4 Cycle death inquest: Boyfriend hugs driver of 32 tonne tipper truck that killed his girlfriend
- 5 Burglar steals video tapes of child abuse, hands them into police
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
Tom Daley ‘is gay because his father died’ says UK evangelist
Iain Duncan Smith leaves Commons food banks debate early
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
PM denies two child limit for benefits is part of Tory welfare policy
Anachronistic and iniquitous, grammar schools are a blot on the British education system
- < Previous
- Next >
iJobs Money & Business
£Negotiable: Citifocus: High calibre individual with institutional client serv...
£120000 - £150000 per annum: Cornwallis Elt : Programme Manager, Strategy Lead...
£55000 - £120000 per annum: Pro-Recruitment Group: The Financial Services Tran...
£600 - £700 per day: Harrington Starr: Client based in West London is looking ...
Day In a Page
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.