What is fractional ownership - a quick 101
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It makes perfect sense - a significant lifestyle enhancement giving true ownership of a second home at a fraction of the full cost.
Fractional ownership is the sharing ownership of a property between several parties. They may be friends and family jointly owning a holiday home or more commonly, unconnected parties.
Fractional ownership is not timeshare. Compare a small group of 4 or 6 friends, family or unconnected parties jointly owning an individual holiday home to someone buying the right to stay at a resort for a fixed week each year - they could not be more different!
Where did it start?
Informal sharing arrangements of property and other assets have been around for many years. But fractional ownership as a commercial concept grew in the early 1990s in the United States with private jets. It was soon recognised as a practical way of owning vacation property and developed quickly in the ski resorts of Colorado and Utah.
It is now highly developed throughout the United States, Canada and the Caribbean and its popularity has grown significantly in Europe - particularly in Italy, France, Spain and the UK, in South Africa and Australia, and in Asia – notably in Thailand.
How does it work?
A range of structures have been developed which allow ownership of a property to be shared so that each owner has a “deeded” interest which can be sold, bequeathed or mortgaged without affecting the other owners. With most fractional arrangements, the property will be owned by the fractional owners, either by being named on the legal title or via a company or nominee structure.
The 'fractional ownership umbrella'
Over the last 15 years, 'fractional ownership' has become a popular term for any arrangement where the ownership of a property is shared between a small number of owners. Other terms are often used including 'collective', 'joint' and 'shared' ownership but these have different connotations in different jurisdictions.
It is now generally accepted that the term covers a range of options for ownership of holiday property:-
Traditional fractional ownership
This covers schemes where a single property is owned by a fixed, small number of owners who have full rights to use only their property. The structure will normally give each owner true ‘bricks and mortar’ ownership of the property, although there are a number of ways that this can be documented.
Private Residence Clubs
PRCs are normally resort based – in traditional vacation destinations as well as in urban locations, and are often developed and managed by international hotel or other leisure companies. Although they may offer members some form of equity interest, they do not usually offer what we would call traditional ‘bricks and mortar’ ownership. Members may not always stay in the same property each time they visit the resort.
Generally, the attraction of PRCs is not so much in the perception of property ownership, but in membership of an exclusive club that offers high quality accommodation and leisure and lifestyle services.
Although they are often confused with Private Residence Clubs, Destination Clubs differ in a number of ways. In particular, Destination Clubs give members access to a portfolio of luxury properties around the world. They are normally individual stand alone properties rather than resort based and so may not have the same level of leisure and lifestyle services as Private Residence Clubs.
Although Destination Clubs may offer their members a form of ‘equity’ participation, this is normally indirect – either in the form of an interest in an offshore fund or by offering members a share in any increase in value of the portfolio. As with Private Residence Clubs, the principal motivation for members of Destination Clubs is access to luxury properties around the world rather than true ‘bricks and mortar’ ownership.