Timeshare property sales dive in US as they are no longer seen as a good buy

Property timeshare purchases in the US have fallen the most this year since the industry first became popular in the 1970s as buyers desert the sector.

Sales are expected to be down 30% by the end of the year compared with 2008, according to the American Resort Development Association (ARDA).

Howard Nusbaum, president of the Washington based trade group said that the market will remain challenging for the next 18 months as research shows that timeshare has lost its appeal.

‘Timeshares are just very, very discretionary items. It’s the perpetual vacation. Buyers are pre-paying for the ability to take a vacation every year. Under current economic circumstances people are more reluctant to pay for that,’ said Chris Woronka, an analyst at Deutsche Bank Securities in New York.
US timeshare sales dropped 8.5% last year to $9.7 billion from a peak of $10.6 billion in 2007, excluding the luxury fractional business and private residence clubs, according to a study by Ernst & Young for ARDA.

The decline was the industry’s first since 1975 and is being driven by tighter credit, a higher personal savings rate and the loss of 6.9 million jobs since the recession started in December 2007.
Last month Marriott International, the largest US hotel chain, said it will cut prices, halt development at some residential resorts and at some luxury fractional ownership properties, and sell some undeveloped land.
‘We have enough inventory to last a few years.

Prices are not likely to turn around in the near term. Given the development risk, we plan to complete the inventory we have under way, but not develop any more,’ said Laura Paugh, senior vice president of investor relations at Marriott.

Wyndham Worldwide, the largest seller of timeshare vacation units, said it expects sales in 2009 to be down as much as 40%.

There is much debate as to whether the sector can weather the downturn sufficiently to attract investors back.

‘The main obstacle for the industry is that there will be a semi-permanent reduction in demand because developers would sell to people with relatively low credit scores,’ explained Woronka.

‘That won’t be possible anymore.

Your pool of buyers will be much smaller from now on,’ he added.

Starwood Hotels & Resorts Worldwide saw timeshare sales fall 48% in the fourth quarter of 2008. It has closed nine sales centres and cut 900 jobs.

‘Our sense is that the timeshare industry is less optimistic about any near-term recovery than is the hotel industry, as the timeshare industry’s hands are tied by the availability or lack of financing,’ said Patrick Scholes, senior equity research analyst at FBR Capital Markets.

However Paugh is confident that the good times will return.

‘I don’t think timeshares are out of style. Customers really do like it,’ she said.