With any property purchase, the ability to resell at a later date remains a key concern for buyers, and with fractional - a new concept for many - the potential is an important one to consider.
In Europe, one of the challenges in establishing re-sales potential is the fact that the market is so relatively young - as Brad Lincoln, CEO of fractional consultants The Best Group, explains: “In Europe there just aren’t many re-sales on the market - fractional is a relatively new concept in Europe and people are now buying for use.”
However, he has seen early indications of re-sales potential: “We have seen it happen sporadically and in the cases we have seen, they have sold quite quickly - about six to eight weeks on average - and have experienced a gain. The average we have seen is a gain of 18% after a couple of years’ holding - but it is important to stress that this is a small sample.”
Compare this to the United States, however, and the differences are clear, and it is this comparison that offers the clearest indicators of how re-sales may develop on the European continent.
Looking to the west
In the latest data from Ragatz Associates, it was estimated that total sales volume in the North American shared-ownership industry in 2008 was $1.525 billion - constituting $263 million in fractional interest projects (17%), $912 million in private residence clubs (60%), and $349 million in destination clubs (23%).
Lincoln notes that, in the US, there is a healthy re-sales market within these figures, noting “the latest data I have seen showed that, in 2007, some 10% of fractional sales were re-sales”.
Joel Greene, a licensed real estate broker with Condo Hotel Center, agrees that, in the US, fractional properties do well on re-sale. He argues: “Part of their value is that the demand is greater than the supply. However, more importantly, the whole concept of fractionals and the success of fractionals, revolve around their exclusive location - these developments are built in some of the finest, most expensive, quickly-appreciating locations in the US.”
As stated, though, the US currently boasts a more developed culture of buying fractional property - the question then becomes whether Europe will follow the same path, and at what speed.
Brigitte Urbano, sales manager at Oceânico Prestige Residence Club, comments: “There is a market for re-sales and with most developers it is a simple system. As time moves on this will be a huge growth area - the fractional market in the USA grew enormously over the last ten years and Europe will follow suit.”
With regards timings, Lincoln feels Europe will develop a re-sales market at an even quicker pace: “In the US, I would say the fractional industry is about nine years old, and in Europe about two. Looking at the potential re-sales market, though, I would say that fractional has developed into a mass market product quicker in Europe, so I feel it will therefore develop a re-sales market quicker than the US did.”
Culturally, other countries outside the US may also have a particular dispensation to shared ownership, making re-sale easier and increasing familiarity with the concept. As Mike Saunders marketing director at Crete-based developer Snobby Homes, notes: “Greek property law allows shared percentage ownership - be it purchase or selling a percentage. If one party wishes at some future date to sell their percentage ownership, the Greek legal system allows this to be carried out simply and without major cost.”
Planning your exit
Clearly, the European re-sales market is not yet as healthy as in the US, but development is expected and for buyers looking long-term, it is the mechanisms of making the sale that should therefore be planned for.
For example, it is important to have a clear understanding of the ‘get out clause’ when buying from a developer. As Urbano explains: “It is important to remember that like any property purchase, fractional resale is subject to market conditions, however with re-sales, check how much hand-holding the management company will offer.”
When working with developers and buyers, the Fractional Ownership Consultancy, for instance, promotes a multi-tiered system for re-sales, as chairman Les Milton explains: “Within the documentation we provide, 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 can be involved.”
This developer help with re-sales is certainly worth investigating, as the support can offered can ease any concerns you have over how to market your fraction at a later date. Milton notes that many developers will get involved because “they have a sales infrastructure on site”.
For Lincoln, this support is also regarded as an important statement of confidence in the fractional market: “Developers are working on services and support for re-sales - for instance by guaranteeing to help re-market a purchase, or offering priority on re-sales versus new product they may have. Developers are essentially saying ‘re-sales will happen, but the proof is in the pudding so we will demonstrate our commitment to the industry now’.”