For those new to overseas property buying, the many forms of shared ownership can be confusing, yet it is important to know exactly what you are purchasing, why and where, to ensure you are getting full value and taking up the right options.
The shared ownership world broadly encompasses fractional ownership, private residence clubs, condo-hotels, destination clubs and timeshare. Essentially, though, there are two main types of shared ownership product - those with the right to an asset, and those offering a use-age right.
With the fractional model, while some consumers still mistakenly see it as a form of ‘timeshare’ - because you obtain do rights to use a property - the key distinction between the two is that, with fractional, you are buying an asset, rather than mere holiday time.
Fractional resort amenities also tend to be of a higher standard, as Geoffrey McClure,director of Azure Property International, notes: “Because fractional is usually bought for lifestyle reasons, five star resort facilities - which can include a spa, golf or marina facilities, restaurants and a beachfront destination - are all important.”
For specialist consultant David Disick, the key message is that “you can have the same realistic use you would make of a comparable whole ownership property, but for a fraction of the price, and benefit from club level services and amenities. This is an experience based product”.
Fractional, then, is often sold on this exclusivity - offering access to a destination where property is hard to obtain or local property prices are high, and a lifestyle experience you may not otherwise be able to afford.
Equity and choice
Within the fractional model itself, ‘private residence clubs’ (PRCs) represent the upper echelon of the experience, and can also offer useage of other high-end properties. Disick says: “Private Residence Clubs really are the highest end of fractional. Patterned after high end city or country clubs, they combine the advantages of individual real estate ownership with club amenities and services.”
Mac van der Merwe, of the Zorgvliet Private Residence Club, adds: “PRCs offer you a membership purchase into a resort environment, usually at five or six-star level. You are likely to be offered concierge services, exclusive access to a luxury boat or helicopter, as well as to the amenities of the resort. Exchange with similar resorts around the world is typically included. It’s like belonging to a private members’ club”
For the fractional sell, though, the fact that it offers an equity proposition proves the key USP - backed up by the added extras. While within PRCs there can still be differences between those that are equity, and those that are non-asset, based, they tend to represent a fractional offering.
The fourth shared ownership model, however, takes the form of destination clubs, whereby buyers usually receive a non-equity membership in a club that offers use-age across a portfolio of destinations.
Outlining the key differences between the various models, Graeme Grant, managing director of Fractional World, summarises: “Timeshare gives you the right to use a property for a period of time each year. Fractional is ownership of a part of the equity of a property. PRCS are another name for a fractional project, although it’s often the preferred label for properties being positioned as more upscale and exclusive. A Destination Club, though, is distinctly different from fractional in that no ownership interest is transferred to the buyer. Rather, these clubs are structured like a non-equity country club, but with the central amenity being a portfolio of residences instead of a golf course.”
A fair exchange?
A key selling point of destination clubs is access to a range of destinations - but it is worth noting that such offerings are also available under many fractional and private residence club schemes. In many cases, an exchange programme is offered to allow use of other properties, while retaining the equity stake in the original purchase.
As a buyer, though, it is worth considering the ability to use your time in other destinations element and asking yourself how important that is to you. Nick Turner, VP and head of new business development at Group RCI, explains: “With all shared ownership models, one of the top questions asked is ‘what happens if I don’t want to return to the same place for the next 20 years?’ Exchange programmes mean you can make a single purchase, but then access other properties and destinations. It allows the seller to answer this question.”
Shared ownership definitions:
The Pricewaterhousecoopers Hospitality Directions report defines the shared ownership models in the following ways:
Fractional ownership: An acquisition in which the purchaser acquires part ownership of the equity in a unit within a given property. Typically the fractions purchased are divided into larger proportions of a year than with timeshare – often between 1/6th and 1/10th of a year – and the quality of the property in which the fraction is acquired is higher than mass market timeshare
Private Residence Clubs: Akin to the fractional ownership model, the investment is for a fixed number of days and operates in a manner similar to membership of an exclusive club. These developments tend to be smaller and in ultra-attractive destinations.
Condo hotels: This model offers an equity-based ownership of a unit - typically a hotel room, studio or a one- or two-bedroom apartment within a hotel setting - whereby the unit owner is entitled to a certain number of days’ usage and also benefits from rental income when the unit is let out to other guests.
Timeshare: The investment in a timeshare product should be seen as an investment in holiday facilities, not as a property investment. In classical timeshare schemes, the user purchases an interval - typically in multiples of one week - in a holiday property with the right to use the unit each year. In addition, the owner pays an annual maintenance charge and generally acquires no equity interest in the unit purchased.