Should fractional ownership be a lifestyle or an investment purchase, or both?
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What started as a lifestyle option is changing as fractional ownership is being used for an increasing number of pure investment products.
Shared ownership of a holiday home between small groups of family members and friends on an informal basis has been around for many years. When we first came across the concept over 12 years ago, fractional ownership was very much aimed at personal usage.
The concept started between unconnected parties in the 1980s with the shared ownership of private jets. Fractional ownership of property between unconnected parties developed in the 1990s in the ski resorts of North America as it was seen to offer an attractive and more exclusive alternative to timeshare.
For all those variations on the basic fractional concept, it was very much about offering owners personal use of an asset they may not be able or want to buy on their own.
Today, we still see fractional ownership of real estate as first and foremost a lifestyle purchase allowing owners to jointly own a holiday home and share the costs with a few others. That remains the case even though they may be able to generate some income by renting out any weeks they will not use themselves.
Even those products which do not offer direct ownership in the strict sense - destinations clubs such as The Hideaways Club being a good example, the attraction to buyers is having access to a selection of holiday homes in different locations. Even though these clubs are often set up within an off shore structure, their buyers’ key motivation is still a desire to enhance their lifestyle, and any capital growth is a secondary driver for most.
However, more recently, ‘fractional ownership’ has become a term which has been used by developers and promoters whose offers (many of which are not related to the second home market) are aimed squarely at the investment rather than the lifestyle buyer. This trend has developed further over the last 2 years as concepts such as blockchain, cryptocurrency and tokenisation are being used in the same context as fractional ownership to refer to investment in an asset or company where ownership is shared between multiple investors.
In jurisdictions such as the UK, most of these offers will be subject to strict regulation in terms of how they are structured and who they can be offered to. These include residential and commercial property, hotel rooms and student accommodation and in the second home sector, resort based accommodation offering a guaranteed income but no or very limited personal use.
Whilst there is nothing wrong in attracting investors in this way (as long as what is being offered is fully compliant), we think it’s a shame that a term that started off as a lifestyle concept is now being linked with purely investment products which offer no personal use of the asset.
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