8 key considerations for buyers of fractional second homes
For many buyers, the concept of second home co-ownership will be new to them. Here, we look at the most important issues they should be considering.
Location
Fractional buyers seek accessible destinations that they will want to return to - typically, beach, ski, golf and city locations. There is a trend for interest in fractional ownership extend from top end luxury properties with the highest quality amenities and concierge services to mid market properties aimed at families.
Clear and easily understood structure
At a time when fractional ownership is still a relatively new concept in Europe, transparency is key to the success of a fractional product. Regulations introduced in Europe in February 2011 now offer greater protection for fractional buyers.
Flexible usage
Most popular schemes now incorporate rotating calendars, a bespoke reservation system, or a combination of the two. It is important that the usage rights strike a balance between certainty and flexibility for prospective owners that will give them an experience which is as close to whole ownership as possible.
Exchange programmes
Most large resorts and many smaller ones allow owners to exchange their usage rights with resorts around the world. Most exchange programmes are operated by large organisations such as RCI and Interval.
Consumer finance
Financing the purchase of a fractional interest has never been easy for non cash buyers, or for those buyers who are not been able to raise capital on other property. As the fractional concept becomes more established, lenders are beginning to recognise its potential. Developments with arrangements in place for ‘buyer finance’ will attract a wider range of prospective buyers.
Absolute clarity on ownership costs
Buyers want to be clear before they buy what the annual maintenance and management costs will be and how much control they will have over any increases.
Exit route
Buyers will want to be comfortable with the potential for cashing in their investment. Whilst most schemes will allow for the sale of fractions, normally by offering them to the other owners first, the market for existing fractions is in its infancy. Some schemes may provide for the sale of the property after a fixed period, perhaps 8 years, which at least gives an owner a guaranteed exit.