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Expat Investor : August 2009
EXPAT PROPERTY Understanding fractional property Les Milton, Chairman of the Fractional Ownership Consultancy, explains this new asset class in the property development market. is important to choose a fractional model which allows an owner to sell without hassle. Be aware that each share in a fractional ownership scheme is usually marked up by 1.25 – 1.3 times to cover local taxes, a quality furniture pack and marketing costs. Higher mark-ups than this eliminate the resale market and negate any chance of bank finance, as financial institutions are concerned to set their mortgage lending on a realistic sales price. Mortgage financing can be View from The View, a Vigia Development in Portugal. Everybody knows that if you are a property developer, it’s tough out there at the moment. As a general rule, when a market goes pear- shaped, developers need to look for a niche opportunity. Fractional ownership of property is probably the best niche currently available for property investors. Some even claim that fractional property will outsell freehold within five years. Fractional is a superb way for expat investors to enter the fray. Literally thousands of potential buyers are already owners or will be owners of fractional property within the next 12/18 months. What is it? Fractional ownership allows several unconnected buyers to collectively own the freehold of a second home. In practice the developer finds the buyer/investor and guides them through the ownership process. Frequently, fractional ownership involves four people, each contributing towards the cost of buying the property, that is, they will each own 25% of the bricks and mortar. The legal implications may sound difficult and risky – but they are not, providing the process is controlled by advisers who have the experience and skills to structure the agreement correctly. Significantly, fractional ownership is not timeshare, which is simply a method of prepaying for future holidays without equity ownership in a property. Benefits for investors There are many benefits for investors: ? Lower entry levels to investment. ? The investment 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. ? Increased liquidity. The sale of fractions in a quality resort is often easier due to buoyant re-sales driven by the developer’s sales team. ? 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. ? 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. ? For expat investors, fractional ownership allows you more freedom. You can own fractions in a number of properties around the world depending on your work and leisure requirements. Although a lot of fractional property for sale is currently on beach and golf resorts, I predict that in the future we will see far more emphasis on cities. I can see urban fractional in London for example, working very well. Here’s what fractional owner Adrian Howe has to say about The View, a quality resort in the Western Algarve – A Vigia Development. “A few years ago I decided I wanted to purchase a holiday home in Portugal. Initially, I was contemplating buying outright, then I came across fractional ownership whilst visiting Vigia’s coastal resort, The View, located in the village of Salema on the Western Algarve. I was captivated by the stunning location and I was amazed at how much further my money could go by purchasing a quarter of a property rather than buying outright. I work full time, therefore I am unable to spend more than a few weeks each year in my holiday home. Buying fractional made much more sense to me. Combining this with Vigia’s rental programme and excellent management services has made owning my holiday home enjoyable and hassle free with the potential to be a very sound investment. I have looked carefully at my fractional contracts and am very comfortable with my exit strategy. I can choose my time to effect a sale and, having delved somewhat into Vigia’s Fractional history, find that, to date, no fractional owner has sold their share in a property at a loss.” What to look out for As the fractional market grows, I predict entrepreneurs will produce a variety of fractional models that they will offer to developers. Investors must be cautious and examine in detail how the fraction will be purchased and held. For example, the oldest form of fractional ownership – multiple names on the title deed – can, depending on the jurisdiction, be awkward logistically when an investor wants to sell but none of the co-owners are prepared to buy the share. Buyers should check the track record of the developer and sales company offering the property. Has the fractional model been used before in that jurisdiction? Is it legal both locally and under UK/European law? Be careful when buying a ‘share’ from anyone not qualified to do so under the Financial Services and Markets Act. A property can have up to 12 fractional owners – more than 12 will attract Time Share regulations. An essential requirement of any sales contract is that it must clearly define an exit strategy should any one buyer wish to sell. Where the Title Deed is signed by several owners, everyone has to sign the necessary change of ownership documentation and even attend a meeting altogether with a notary. It difficult to obtain for a fractional property due simply to the fact that banks cannot repossess a property owned by several unconnected buyers. At FOC we have an exclusive partnership with a leading UK lender and can arrange unique fractional mortgages to investors based on the ownership certificate alone. Our partner offers such mortgages as they are comfortable with our business model. What’s on Offer Portugal The Vigia Group has been operating out of the Western Algarve for 15 years and is well established in the Fractional Marketplace. The Vigia Group is currently offering twelfth share properties from €40,000 and quarter share properties from €132,000 on a number of luxury beach and golf resorts in the Western Algarve. www.vigiagroup.com Oceânico Developments, launched in 2000, specialise in four and five star residential and holiday homes within superbly equipped and designed golf, beach and leisure resorts. Oceânico Developments are offering Fractional Ownership in Portugal with a starting price of under £30,000. www.oceanicodevelopments.co m The Bom Sucesso Design Resort near Obidos on Portugal’s Silver Coast is offering 4 of its distinctive contemporary villas on a fractional ownership basis. Three are being offered in sixths (2 months usage) with prices starting from €142,000 per sixth share and one in quarters (3 months usage) at €197,300 per quarter share. All villas are fully furnished and equipped and have access to the 18 hole championship Donald-Steel designed golf course. www.bomsucesso.net Quarter shares at the 21 newly converted luxury apartments in the Aquapura Douro Valley are being offered from €112,500. Owners have access to the facilities at the on- site award-winning hotel, including a 2200 sqm spa. www.aquapurahotels.com Quarter shares are being offered for one and two bed apartments at the 5 star Cascade resort located on the stunning clifftops overlooking Canavial Beach just outside Lagos on the Western Algarve. Prices are €110,000 for one bed apartments and €172,000 for two beds. Facilities include a spa and Golf Academy. www.cascade-resort.com Spain Taylor Woodrow de España is currently offering quarter shares at two of its developments located on Los Arqueros Golf Course, 10 minutes from Marbella. Prices start from just €79,000 for a quarter share of a 2 bed apartment and eighth shares at the Valle de Alenda residential complex situated at the foot of the Sierra de las Aguilas mountains from €37,500. www.golfingfractions.com Greece The Halcyon Hills Luxury Resort and Spa located on the Greek island of Samos is to offer some of its properties on a fractional ownership basis providing buyers with a great opportunity to own a stunning property in Greece at a fraction of the cost. One-twelfth fractions are being offered on four styles of property, allowing each buyer four weeks’ use of the property each year. A fraction in a one bed apartment suite is £19,000, £28,000 in a one bed luxury villa, £39,000 in a two bed superior villa and £70,000 in a three bedroom premier villa. These prices include a quality furniture package. Fractions come with a minimum 7% guaranteed rental return if the owner decides to rent out their allocated weeks rather than holiday on the resort themselves. www.halcyonhills.co.uk US The FOC model has been tailored for application to the Floridian property market.We have taken advice from the leading attorneys there and see a huge future in investors/users sharing properties, on beach and golf resorts but particularly on Disney type resorts where occupancy figures are high. This suggests that owners’ unused time can be ‘handed back’ in exchange for potentially considerable returns. It is worth noting that we are limited to having no more than six owners sharing Floridian properties. As with Florida, the FOC model has made a seamless transition to the UK property market. Currently FOC is advising on two waterside resorts in the UK with imminent launch dates. FOC is also currently advising clients in Egypt with resorts on the Mediterranean coast and the Red Sea, with probable launch dates in 2010. July/August 2009 ? EXPAT INVESTOR 21
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September October 2009