A £400,000 property owned by four owners would cost each £100,000 and each owner may stay in the property for a quarter of a year, 13 weeks, but they are cash purchases in the majority of cases.
As the global economic situation sends shockwaves around the property industry, more and more developers - and buyers - are looking to fractional ownership.
The dream of owning a home overseas still beats strong in the heart of most Brits - the recession can't change that. But potential buyers are being forced to cut their cloth according to the current financial turmoil, and they are finding that fractional ownership is an attractive solution.
Consequently the number of developments available on a fractional basis is growing fast, along with the volume of related transactions, and some industry figures are claiming that is nothing less than the future of the overseas property industry.
Brad Lincoln, CEO of fractional consultancy The Best Group, says: "In five years time the only people not buying fractional will be retirees.
Fractional is going to take over completely. Freehold ownership will become a luxury, with only high-end buyers taking this path."
Graeme Grant, managing director of Resort Group International, agrees, saying: "Fractions have been successfully marketed in the USA for some 10 years now and will become the major leisure property product in Europe within five years, easily outselling freehold within that period."
The first thing to emphasise is that fractional ownership is most definitely not the same thing as timeshare, although there are still plenty of timeshare operations out there, and timeshare is not necessarily a bad thing, despite the acres of negative press it has garnered largely due to a handful of unscrupulous individuals.
So what exactly is fractional ownership? Les Milton, chairman of the Fractional Ownership Consultancy says: "Fractional Ownership is the shared ownership of a property, with the title deed being divided into fractions, usually quarters but sometimes into as much as twelfths. A £400,000 property, for example, owned by four owners would cost each £100,000. The owners of each fraction then have the right to stay in their home for the corresponding amount of time. For example, if you own a quarter share, you may stay in it for a quarter of a year - 13 weeks.
"This very much suits people looking for a holiday home abroad. Not only are their initial costs in purchasing the property greatly reduced, but the costs of running it are also shared. And it is very unlikely that they would wish or be able to spend more than 13 weeks a year in their holiday home. Furthermore, they really do own 25 per cent of the property, so they take proportionate advantage of any property price rises and asset appreciation. They can also sell their interest at market value at any time.
Milton continues: "Most fractional ownership properties are available in quality resorts with a full range of amenities and facilities, which means the resorts are professionally managed with a full rental programme in place. That is the final benefit to the fractional owner. When he or she is not in residence, the property can be let to generate income, probably enough to pay the overheads for a whole year."
Another aspect of fractional ownership that needs highlighting, is financing. Although the potential is there for a wisely chosen fractional scheme to be a good investment, these are not get rich quick schemes, where you can pay a small deposit, get a mortgage and rely on capital appreciation to make a buck before flipping on completion. Most lenders won't touch fractional ownership due to the complications of repossession should the lender default, so they are cash purchases in the majority of cases. Having said that, the Manchester Building Society has just become the first British lender to introduce mortgages specifically for certain approved fractional projects.
Read the golden rules to remember when considering fractional ownership.
