The new buzzword in the overseas property industry is fractional ownership, but what does it mean and how easy is it in the long term?
Whilst doing your research into buying overseas property you can’t have failed to have come across the term fractional ownership but to anyone outside of the overseas property industry this sounds very similar to timeshare. So what exactly is fractional ownership and why should you be considering it?
Fractional ownership allows a group of unconnected buyers to invest jointly in a property. There is strength in numbers, and the more buyers you purchase the property with, the less you need to pay. Fractional ownership is a very straightforward way of owning a property and paying less for the privilege.
So why should you be considering fractional ownership? In addition to the financial benefits, you only need to pay your share of any management or maintenance costs plus you needn’t worry about security whilst you’re not at the property. You get title ownership of a property for a fraction of the cost. Fractional ownership is all about worry-free hands-off property ownership, great for those of us that do not want to be consumed by the day to day tasks of owning and running a property abroad.
Fractional ownership is an established method of purchase. Buyers have been pooling their resources together to buy all manner of luxury items, including superyachts and air travel, since the 1990’s. It’s a tried and tested method of owning items, objects or property that might otherwise be too expensive for one buyer to purchase outright.
So is it like timeshare? No, the main difference between fractional ownership and timeshare, is that with fractional ownership you own part of a title as opposed to just time. You have a tangible asset that appreciates in value as does the property. When buying a fraction of a property, you will be allocated an amount of usage, usually split between high and low seasons. To keep things fair, your yearly allocation will rotate, so each property owner has the benefit of peak times such as school holidays or Christmas breaks. This is where the similarity with timeshare comes in, but the differences are clear.
For example, you can own 1/12th of a property at the five star luxury resort of Halcyon Hills in Samos, Greece. For £22,000 you would own a fraction of a hotel suite, giving you four weeks usage a year. The Developer of this project offers added incentives including a guaranteed rental return of up to 8% of your purchase price, per annum, if you buy for investment reasons only and decide not to use your property. Or 5% guaranteed rental return if you decide to use only two weeks of your allocation.
Comparing the full ownership and fractional ownership purchase options from the above offer, you’d pay £22,000 as opposed to £120,000 for a hotel suite. You’d benefit from the same luxurious facilities including a world-class spa, 35 berth marina, restaurants, tennis courts and gym. Finance and guaranteed rental returns are available for both purchase options, as is the 150% buy-back offer (ending 1st August 2010). The only disadvantage of buying a fractional property over a full property would be the limit on usage you’re permitted each year. However, few property owners actually spend more than four weeks in their overseas property each year.
Fractional ownership is really beginning to take hold in the UK, with more and more overseas developers realising that UK buyers want an easy ownership property, that requires minimal input but maximum gain.
