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The Market

The Fractional market was launched in the US some years ago, the initial objective being to sell ownership or useage of a luxury product which could take the form of yachts, jets, cars or property
located in exclusive locations. Think five star accommodation in Aspen, Monte Carlo or Portofino for example - all high end destinations where outright ownership costs are stratospheric! It really makes financial sense to purchase exactly the amount of property that a buyer is able to use during the year, with the added advantage that maintenance and services will be covered by a yearly fee and any problems are dealt with by a local management company.

In its simplest form, a luxury property is sold (as a club membership) in segments of 1/4, 1/8 or 1/16 providing the purchasers with a fixed or rotating term of annual residence and with the use of all amenities. A one off purchase fee is paid to acquire the fraction together with an annual fee to cover the costs of maintaining the property and any amenities provided.

Many prestigious hotel brands in the States have now included fractional sales as part of their product offering. They aim to attract a new type of client which helps to increase year-round occupancy levels at their resorts: Ritz-Carlton, Hyatt, St.Regis and Four Seasons all operate successful fractional properties. Marriott Vacation Club International was the first to launch in London and appealed immediately to an international clientele - 37 Park Street in Mayfair is sold on a twelfth share basis and offers a five star hotel level of service. Other strategic locations that appeal year round include Portugal and the south of Spain for the world class golf courses and Tuscany for the food and wine and cultural heritage.

In Europe, Fractional property has been a hot topic since the beginning of 2008 and the economic downturn has meant that many developers are now looking at this sector with exit strategies in mind. There are many different types of product available - from high end and exclusive, to mass market with few frills.

One of the newest products to come to market is the fraction with a ‘limited life’ span (e.g.10 years) where the asset is sold at the end of the usage term. The net proceeds generated by the sale of the property at the end of the usage term are split between the fractional owners. This concept has two major attractions for the buyer: he’ll use it for a decade thus saving money on future holidays and he also has money invested in a property which could show him a profit when the scheme terminates. This is usually the most affordable fractional product as it has been tailored to a market for whom consumer finance is largely unavailable. The typical length of fraction with this type of scheme therefore is 2 weeks and the property will probably be in a Mediterranean beach resort where the cost of real estate is relatively low.


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