So if, for example, you have a 1/8th ownership of a £1m property, then you and 7 other people own the property for just £125,000 each (although see point to watch out for below). More and more new developments are also selling property on this basis.
Is it different to timeshare?
Yes and no. Yes in that you will actually legally own a share of the property, whereas with timeshare you are simply buying a holiday allocation. It is similar in that you are given a number of weeks when you can visit the property, although fractional ownership offers more flexibility in the weeks you can take.
Is it legal?
Yes. It is similar to a standard property purchase, although your name is registered on a structure that owns the property and you get a share certificate stating what fraction you own.
Why is fractional ownership becoming more popular?
The reasons are twofold. First, property buyers are looking to limit their exposure to property, but still want access to luxury resorts. Secondly, with the overseas property market suffering, fractional ownership is seen as one way of off-loading unsold stock.
Is it regulated?
Not everywhere. Fractional ownership is well known in the US and Canada where it is regulated. However, it is fairly new to Europe. This means potential buyers need to be on their guard and, like any property purchase, work only with reputable organisations.
Should I be wary of anything?
Be wary of unsolicited mailshots about fractional ownership and potential ‘investment’ opportunities in land or business opportunities. In particular, be wary of anything that proclaims a ‘sure fire way to make money’. Fractional ownership is more about acquiring a particular lifestyle and less about making money.
What about buying off-plan?
Follow the same rule of thumb for buying property outright. Check out the reputation of the developer, how they plan to fund the build and whether planning permission has been obtained. Deal only with reputable companies that have all the necessary funds and legal permissions in place.
What about the quality of the property?
Fractional ownership is a way of getting a luxury property for a fraction of the cost. Make sure this is the case by paying a visit to the resort before you buy. This is important, particularly as developers increasingly see this as a way of offloading existing unsold stock.
Can I get a mortgage?
No. If you need to raise finance this would have to be via a specialist broker and/or use existing savings. If you have sufficient equity in existing property then this can be another source of raising finance.
Can I sell?
Yes. There are a number of exit options, although these will differ from country to country. First you can offer your share to the existing co-owners. Second, some resorts have a resale service. Thirdly, some newer schemes are offering an open market facility to sell the whole of the property after a, say, 15 year period. Obviously to do this you would need the accord of all co-owners.
Will my property purchase rise in value?
Any rise in value as well as fall in value will be subject to fluctuations in the property market. Any rise or fall in property value will be limited to your share of the property.
I like the benefits, but are their any disadvantages?
There are advantages and disadvantages with every property transaction. The key is to do your research to be confident it is the right transaction for you; research the facts and deal only with reputable organisations. We have listed some potential disadvantages below:
- The risk of not getting the weeks you want, when you want.
- Taking advantage of the full 6 weeks may not always be convenient.
- You have co-owners to deal with.
- When it comes to buying and selling you are not dealing with a traditional property transaction.
- If you want to put the property on the open market you need the agreement of all owners.
- It’s still a fairly new concept in Europe, although buying yachts and aeroplanes on this basis has been around for some time.
- It is not yet regulated everywhere, notably in Europe.
This article was submitted by Deborah Benn, a journalist who specialises in personal finance for British expats via Expat Money Channel (www.expatmoneychannel.com )