The Fractional Ownership consultancy currently provides a range of services to enable developers to offer fractional ownership, and has also collaborated with the Manchester Building Society who, via their subsidiary company MBS (Mortgages) Ltd, offer fractional mortgages to investors.

As chairman, Les Milton, is therefore well-placed to offer an introduction to the concept and dispel common misconceptions and fears – and he argues the sector is one set to benefit from current global economic challenges: “At a time of economic downturn, this is a sector that is set to thrive, and both developers and investors are waking up to the opportunities it presents.”

Q: There is still a confusion amongst some buyers between fractional ownership and timeshare. How do you explain the key differences to those new to the market?

A: Fractional ownership is indeed a new concept for many buyers -  one where several unconnected individuals jointly own a property in perpetuity, and get to use that property in proportion to the fraction of the property they hold (so if they own 25%, then they can use the property for a quarter – or 13 weeks - of each year). Fractional ownership shouldn’t be confused with timeshare - where all that is acquired is a right to use the property over a defined period of time (usually 25 years). Timeshare operators are increasingly using the term fractional ownership but they are essentially selling holidays and the model has little to do with owning a property.

Q: What key arguments do you make for investing in fractional?

A: There are several clear benefits for investors in fractional ownership. First there are lower entry levels to investment. The investment also often outperforms market averages - buying a quarter of a larger and /or better located property is likely to lead to greater appreciation than an outright purchase for a similar level of investment.

You can also achieve greater diversification within one asset class by investing in different resorts, with different developers and in different markets - for example, one market may be flat whilst another is buoyant. Similarly, investors can choose to buy all the fractions in one property, with the sales of the fractions in the property offering a more flexible exit strategy.

Finally, there is also increased liquidity - the sale of fractions in a quality resort is often easier due to buoyant re-sales driven by the developer sales team.

Q: In general terms, what legal considerations should buyers make?

A: As more developers begin offering their stock fractionally there will inevitably be a variety of legal ways in which fractional ownership is structured. It’s important that investors examine in detail how the fraction will be purchased and held - for example, multiple names on title deeds can, depending on the jurisdiction, be awkward logistically when investors either want to sell or if only one of the co-owners wants to sell. 

Therefore, it is essential to check the track record of the company which has prepared the particular legal method. Has it been used before? Is it legal in the territory where the property is located and in the investor’s home territory? 

Purchasers buying a share of a company, which in turn owns a property (which seems to most to be the logical route), also need to be careful that the sale of the share to them does not fall foul of any financial services legislation which prohibits the sale of shares to the public other than in very specific circumstances. In the UK, for example, this is the Financial Services and Markets Act.

Q: As it is a concept which is new to many buyers, whether they are investing or buying for their own holiday use, they won’t have experience of the re-sales market and how they can go about selling their ‘fraction’. How can this be approached?

A: First, over the last seven or eight years, we have no record of anyone losing money on the sale of a fraction - prices appear to appreciate at the same rate as outright sales within a particular development.

As to whether there is an established market for re-sales, within the documentation we provide to developers and buyers there is particular reference to how a fraction can be sold. With our product, the developer doesn’t have first refusal on re-sales. Sellers first offer their fraction to the other co-owners. Then, should there be no interest would be allowed to sell in the open market and, at this point, the developer may choose to be involved.

Q: Can fractional buyers expect help in selling on their portion of a property should they wish to sell?

A: Often developers will get involved in re-sales because they have the sales infrastructure on site.

Q: What is driving the fractional marketplace at present – particularly at a time when the global economic situation is proving so challenging?

A: Actually, under the current rather dire circumstances in which the property market finds itself, fractional ownership seems to offer a glimmer of hope. The US fractional marketplace has been the fastest growing of all US property sectors - growth has been five-fold over the last five years and today the US fractional industry is worth an estimated 2.3 billion dollars. I think it is inevitable that Europe will follow the same path.

The fractional marketplace in Europe is still in its embryonic stages - investors and second home owners are really only just starting to buy on this basis.  Once the resell market is properly tested and real profits are made, I predict that fractional will be recognized as not just a lifestyle purchase but a viable option for investors. 

As well as making sense in the current environment from a financial perspective, there are other factors which point to a future growth in fractional ownership. During recessionary times, buyers prioritise what is important to them, and many decide they no longer want the costs and hassle associated with whole ownership luxury purchases.

A Mintel report last year found that consumers regarded a holiday as a ‘necessity’ when setting their spending priorities for 2009. This indicates that consumers still want vacation time and a quality second property. Fractional ownership means they don’t have to compromise.