The latest buzzwords in the property industry are fractional ownership, but what exactly is

it...

Fractional ownership is similar to a syndicated purchase, except that it provides a turnkey

package. In other words, buyers don't have to find their own friends, partners or neighbours etc

in order to form a syndicate to buy a freehold or sectional title property.

The key benefit of fractional ownership to consumers is that they are able to purchase shares in

a leisure property at a fraction of the cost of purchasing an entire property, but without any of

the hassles of maintenance and generally with a hospitality component included. And the cost

is a once-off with ownership in perpetuity, and with minimal annual fees to cover items such as

management, maintenance etc.

Worldwide fractional ownership models are usually divided into three business models. These

are:

A) Traditional fractional interest comprises a product selling outside the hospitality

environment. These are usually of average quality, in regional resort areas, without typical

resort amenities and services characterised as a product at the low-end levels of quality. In

South Africa they are generally recognised as syndicated properties.

B) High-end fractional interest (HFI) is a product selling within a hospitality environment, and which represents a step up from the entry level, typically due to some combination of a more

desirable location, lower density, larger unit size, higher construction and furnishings quality,

and/or additional amenities or services – often characterised as 'four-star' quality.

C} Private residence club (PRC) represents the pinnacle of quality – not just among fractional

interests but in comparison with virtually any resort accommodation available, due to a

combination of locations in the top tier of resort destinations on prime sites, extraordinary

architecture and design and the highest levels of services and amenities, ie 'five-star plus'

quality in every way. Examples are the Ritz Carlton and Four Seasons private residences around

the world.

Around the world, fractional ownership is extremely popular and rapidly growing – a trend

which is also becoming evident in South Africa.

Fractional interest resorts exist in four primary types of destinations: ski (52 percent), golf (23

percent), beach (20 percent) and urban (three percent).

Fractional interest share sizes range from one-twenty-fifth providing two weeks of annual

ownership to a quarter providing 13 weeks of annual ownership. During 2004, when fractional

interest sales totalled approximately R7,3 billion worldwide, the average price of a fractional interest was R1,5 million, up from R1,4 million in 2003. Prices at PRC resorts averaged R1,66 million per fraction, at HFI resorts R1,1 million and at traditional fractional resorts R670 000 per

fraction.

One bedroom units are most common at traditional fractional resorts, while two and three

bedroom units are most common at HFI and PRC resorts. Sizes range from about 160sqm to

225sqm.

Seven out of 10 active fractional interest resorts have affiliation with an external exchange

company, such as Interval International who have more than 2 000 properties in their portfolio,

providing new owners with an opportunity to travel the world. In addition, many resorts offer

internal exchange through a club or private relationship between independent developers.

Rental and resale programmes are offered by more than half of all active resorts.

The vast majority of owners worldwide report being satisfied with their fractional interest. The most important purchase motivations are: location of the resort; quality of finishes and

furnishings; and extent of on-site amenities and activities.