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.
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