Words: Ashley Rigg
Published: 21st May 2009
Fraction Man
Piers Brown knows a thing or two about fractional ownership. After writing his thesis for his MBA on the subject in 2006, he launched the
Fractional Life brand which now encompasses the UK’s largest fractional consumer portal as well as the world’s only fractional consumer show. I caught up with him to get his views on how the fractional concept is changing the overseas property market.
Ashley Rigg: How do you see the overseas property market at the moment?
Piers Brown: The market is certainly very different to how it was 12 months ago. Buyers are a lot more cautious now, they are doing more research. Gone are the days when investors would easily get their credit cards out to sign for deposits.
AR: Alex Evans suggested in this month’s OPP that the choice between whole ownership and fractional will be one of the defining factors of our market moving forward. Do you agree?
PB: There will always be a whole ownership market. I’m sure most agents and developers would rather sell whole units if they could shift them. It’s what the consumer will buy that is important.
AR: What will the consumer buy? Isn’t fractional too associated with timeshare to ever make it as a mass market proposition?
PB: I think certainly in Europe the timeshare association is an issue. In the US the fractional market is much more mature and there’s a culture of shared ownership when purchasing vacation homes.
AR: How big could it get in Europe? What percentage of the market could fractional account for?
PB: That’s a difficult one. Whole and fractional will always co-exist. Potentially though I think fractional could account for up to 50% of the overseas second home market.
AR: A bold prediction!
PB: We are certainly a long way off. There aren’t enough mass market offerings for that to be anywhere near the case now but the concept has potential. Finance, regulation and transparency are key. Happy investors will help word of mouth and positive PR. The risk is though that a few unscrupulous operators could give the industry a bad name.
AR: Isn’t the problem for agents that fractional is just more work for less money?
PB: The biggest issue is that many whole ownership schemes are not selling well in the current climate. Consumers see the attraction of only buying a part of a property as it’s less of financial outlay and the average holiday home buyer will only use the property for a few weeks a year anyway.
AR: What can an agent expect to earn?
PB: The good thing is that buyers are willing to pay more for a fractional property. They realise there are extra legal and marketing costs and the entry price is much lower anyway. An uplift of 20% is quite common and the agent should get a reasonable cut of this.
AR: Which type of buyers are purchasing fractional? Is it mainly high net worth individuals?
PB: Fractional is certainly a lifestyle sell rather than a pure investment product. The investment case is difficult as the resale market in Europe is unproven. This is partly why fractional is now excluded from SIPP’s in the UK. In terms of price point, it really depends on the development and the financing available.
Taylor Woodrow had some interesting insights from A Place in Sun Live last month. They said that the middle market was dead (£100k to £250k) but that buyers with up to £60k to spend were very active and were keen on their fractional offering. Interestingly, they found the top of the market (£250k+) to be quite robust.
AR: Is it common to get financing on fractional schemes?
PB: It depends on the country. It’s relatively easy in the US and it’s becoming more common in established European destinations in the Europe like Spain and Portugal. I think it’s something the banks are looking at. It’s a case of managing the risks which is obviously easier in Western Europe than it is in emerging destinations.
.
AR: Who are biggest agents and developers in the market right now?
PB: On the agent side, as far as I’m aware nobody is really selling it seriously.
Savills and
Pure International have their toes in the water, those are probably the biggest.
AR: What about developers? Which are your favourite developments?
PB: I don’t have a detailed knowledge of the whole market by any means but I really like
Borgo di Vagli in Tuscany . It’s a rustic, authentic restoration project and the fractional makes it accessible to a broader market. I like Oceanico’s
Private Residence Club at the higher-end for its luxury appeal. Also Avenio Prieure in Provence is worth mentioning for its innovative approach.
AR: Are there any factional developments you know of that have gone horribly wrong? If so, what can the industry learn from it?
PB: I won’t mention any names, but there was a scheme in the US that comes to mind. It was a high-end destination club which cost $400,000 to buy in. It was a sophisticated timeshare scheme where you got your money back on exit. At least that was the theory. Many investors were left high and dry.
AR: What’s the lesson the industry can take from it?
PB: I think that having equity at least from a European’s perspective is key. A shared-ownership scheme could not have collapsed in this way. The other thing to take from it is the importance of simplicity and transparency in the way schemes are structured.
AR: Finally, what advice would you give to developers looking for help fractionalising their schemes? There seem to be a lot of “consultants” in the market right now?
PB: First of all, fractional is no cure for having a poor product. A good location and amenities are key to selling both whole and fractional. There are a lot of consultants in the market, some of them are “fly by night” but others will add a lot of value. They can perform feasibility studies and advise the best lawyers to use and recommend good share and usage plans.
AR: What should a developer look for when choosing a consultant?
PB: Track record is obviously important as is transparency. A consultant needs to clearly outline what they will deliver and when. I’d be very wary of paying upfront before you agree on exact deliverables.
AR: Any useful resources you’d recommend for agents and developers keen to know more about fractional?
PB: There’s a fledgling industry association,
FSOTA.org that I’m involved in but the website needs some work. You can visit
Fractional Life. Also attending conferences and exhibitions is incredibly useful.
AR: Thanks for your time Piers. You seem to be ideally positioned at the start of a boom in fractional in Europe.
PB: I hope so. Great talking to you. Speak to you soon.
About Fractional Life
Fractional Life is the number one consumer lifestyle brand dedicated to growing the fractional ownership marketplace. The company has 3 divisions: interactive, fractional conferences and exhibitions (the Fractional expo will be 3 years old this year!) and publishing.
With 19 different categories including fractional property, destination clubs and PRC clubs, aviation, boats and yachts, classic and super cars and more, the website is the most comprehensive for users looking for help and purchase advice from over 300 fractional operators.
I march 2009 alone the website achieved 1,000,093 hits making it the most popular fractional ownership website in the world. Fractional Life: The Smarter Way To Own.
www.fractionallife.comwww.fractionallifeexpo.comwww.fractionalsummit.com
User Comments
I think that Nick has missed the point made by Piers. Shared freeholds, as I prefer to call fractionals when they are related to residential property, are a genuine end user lifestyle purchase, which serve to span generations and social groups, as well as seasons and which are a platform towards offering unique sporting, cultural, leisure and lifestyle experiences.
There is congruence in holiday homes and where people wish to retire to. Quite often the holiday home is morped into the retirement home, and indeed there is normally provision within a shared freehold for interested parties to buy out the other member shares, and to move towards full ownership.
Possible causes of failure in shared ownership schemes in Spain and indeed elsewhere are often deep rooted and where a developer is using shared freeholds and other contemporary ownership scheme,s as a panacea to resolving the issues of not selling anything at all.
Once a resort or complex has failed to sell, waving the shared freehold magic wand will not necessarily result in the expected sprinkling of gold dust.
The marketing and selling of resort development property fundamentally lies in the delivery of the harmonious relationship of the hospitality, recreational and property development components, within the entire resort. It is the balanced mix of short, medium and long stay accommodation, however owned which along with unnique experiences delivers enduring value.
The Uk's love affair with Spain has gone dramatically sour for a number of complex and different reasons, exacerbated by an adverse exchange rate and the tightening of once too freely available credit.
Personally I believe that it is increasingly irresponsible to own holiday homes and to leave them empty for most of the year.
Contemporary ownership schemes such as shared freeholds, sale and leasebacks, destination clubs, and dare I admit, the ugly cousin timeshare, encourage lower density and higher occupancy.
An empty property is a cost liability to the owner and to the community. Empty properties create ghost towns and make it near on impossible for small businesses to survive. Moreover empty properties are a magnet for crime and place an increased burden on the security services.
Sharing your holiday home with others is a more responsible choice.
Far fewer properties need to be built. The beautiful resorts and places we are all drawn to can remain as God intended them to be left. Fewer buildings means less construction with all the disturbance which that causes let alone the added security risk of the use of immigrant unskilled or semi skilled labour on construction sites, which then becomes a massive social problem when there is a downturn and it is left in situ, and unemployed.
Fewer buildings means manufacturing less construction materials with all the embodied energy which that process entails. It also means fewer building sites and less energy being used in transportation of materials and labour. Less energy is used in building fewer homes and less energy expended in maintaining fewer properties.
With over 80% of consumers in the UK now concerned about their own carbon footprint, the points made by Nick are increasingly difficult to support.
Personally I am convinced that shared freeholds and other contemporary ownership schemes will become the largest component in holiday home ownership, they present us with a more environmentally responsible choice, and will serve to lessen the seasonal boom bust trajectory sufered by so many resorts, by delivering a more even flow of all year round occupancy.
Nick you may be right to give up on Spain if it does not work out for you, but do not give up on shared freeholds or fractionals, as Piers and others are on to a winner.
Bernard Hornung,
Buckingham Estates
We hope to launch our own Fractional Ownership product in Spain in July and it this one doesnt work then you may as well give up on it in Spain. the real problem is Fractional is ocmpeting with Time Share and the Holiday home market and sometimes gets caught betwen both. The FOC Taylor Woodrow product has struggled here because its not a resort based product and tthere are some other pricing issues as well. The other point Peirs misses is the UK citizens love affair with Spain and when they buy they see themselves retiring here and see there property as more than just a holiday home and to cap it all the whole english menallity of I dont want anyone living in my house
Nick,
Spanish Hot Properties
