News: Fractional has long way to go

Wed, 26 Sep 07

Fractional Ownership of property has a long way to go in terms of plausible and viable returns for property investors, say the Research Team at Obelisk International...

New research undertaken by Obelisk reveals that Fractional Ownership of property for the overseas real estate investor can be just as secure as owning a property outright, but precautions must be taken to verify the probability of the return on investment or ROI. 

‘In investment terms the ROI on fractional ownership is relatively low, certainly in the short term due to proportionately higher share prices fixed by the developer. Financially, the investor has already entered into negative equity’ comments Andrea Elliott, Analyst at Obelisk International.

‘For example if the published price of a quarter fraction is €50,000, but the market value of the whole property comes in at €150,000, there is an immediate loss of €12,000 or €50,000 respectively. Granted fractional developments are usually high end, luxurious resorts but our property research shows that the shares are also priced as such.’

Transforming the market

Les Milton of the Fractional Ownership Consultancy comments ‘The financial changes that are coming in will transform the market, 2007 is going to see a burst of activity in this type of ownership.’ Providing evidence that confidence and optimism prevails within the industry.

Changes include an improved legal infrastructure and property management systems, with some management companies now offering up to 12 weeks use of the property, with the rest of the year earmarked for the use of other partners, exchange via an international network, or rented privately.

However, Obelisk believes that the traditional full ownership of a property investment will remain the option of choice for UK and Irish property investors. The main points of dismissal are the unprecedented press coverage of the holiday ownership industry, the fear of an unknown territory or just the un-relished prospect of sharing a property with other owners.

In general, shares greater than a quarter provide the buyer with a registered title deed to which the owner can hand down to family members and resell. But the types of developments, property shares and the management costs vary greatly between developers and the investor will need to carry out a great deal of research.

Hard task ahead

Kevin Prior, Obelisk’s Investment Director comments, ‘Fractional Ownership companies have a hard task ahead of them in converting UK investors. Many developers are turning to fractional sales in a bid to raise more immediate revenue, providing overseas property investors with a quick, inexpensive, and secure entry into the market. However, I would say that Fractional Ownership is more suited to those who cannot afford a property in its entirety.’

Obelisk says that research is essential when considering Fractional Ownership. Check the entitlements to the property, management costs, along with all of the small print and research both the country and the resale market, to ensure stability and good growth potential.

Elliott concludes: ‘Most importantly check the reputation of the developer and the solidity of the contract, if you are not buying equity you are essentially buying holiday ownership. Some shares only provide one week per season of use, therefore the comparison between fractional ownership and holiday ownership only becomes distinguishable by the presence of a title deed, nonetheless the former is noticeably more expensive.’ 

For more information, please visit www.obeliskinternational.com

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