Developers start pushing fractional property ownership as a good deal
Developers are starting to offer fractional ownership deals in a bid to offload apartments that they can't sell, especially in Europe.
They claim that part ownership deals, which have been popular in the US but are now declining in popularity, will make property more affordable to investors.
Fractional ownership deals, which typically allow a buyer to purchase anything from a quarter to a twelfth of a property, are still rare in Europe.
But there has been a flurry of fractional activity in recent months as the global real estate downturn has forced developers to look for new ways to sell real estate that would normally be snapped up by second home investors.
Taylor Woodrow de España, the Spanish arm of UK based Taylor Wimpey, the Oceânico Group of Ireland, David Lloyd Resorts of Britain, Grupo Pinar in Spain, the Zorgvliet Group in South Africa and Vertuz Development in Thailand are a few of the developers preparing fractional programmes.
'Everybody has to look at alternatives,' said Richard Jackson, regional sales manager for Taylor Woodrow de España which is to offer part ownership in 16 resorts in Spain.
Some professionals believe that part ownership will really take off, especially in Europe, as people realise that it gives them a chance to have their dream holiday home in the sun.
'Within 10 years the fractional market will be bigger in Europe than the United States,' said Peter Kempf, president of European operations at DCP International, a consultancy based in Illinois that markets private residence clubs.
Companies that specialize in marketing fractional ownership say they are receiving an unprecedented number of inquiries from developers. Leisure Solutions, a Bangkok based company that works with developers, has doubled it clients in the past year.
The Fractional Ownership Consultancy, based in Guernsey on the Channel Islands, expects to add projects in Egypt, Morocco, Cape Verde and Brazil in the next year. 'The reality is that the property market in Europe is awful, and developers have got to look for a selling option rather than just selling a property outright,' said Les Milton, its chairman.
But what has happened in the US where the popularity of fractional ownership has declined rapidly and some destination clubs offering different forms of shared ownership have filed for bankruptcy or asked members for increased fees to stay afloat, may be a warning about over confidence in this option.
In Europe the market is still clouded by memories of timeshare horror stories involving false advertising, rip offs and investors losing money. Last year the European Commission moved to strengthen regulations protecting consumers against aggressive sales pitches from time share operators.
But developers claim that unlike time share where the investor is buying only the use of a unit for a period of time, fractional deals offer a share of ownership, including profit or loss if the unit is ever sold. Fractional owners also typically share in maintenance costs.
But critics point out that fractional deals mean more cash for the developer who may, for example, charge €$100,000 for each quarter share of an apartment that might sell for €300,000 as a unit.