Fractional Ownership News

Acquire a vacation home through shared ownership

Date: 08/12/2009
Article source: www.businessdailyafrica.com

It is that time of year again and everyone is thinking about taking holidays and debating where they will go with their loved ones and families. The problem is that most people will end up going to the exact same destination they have been for years.

People go about financing their holidays in different ways; some diligently save up each month throughout the year while others take a different approach. Some that don’t have family commitments just splurge their whole Christmas bonus on their annual holiday. Their rationale is that they want to spend the money before they have heavy family commitments or become too mature to do this.

The problem with this is that when January comes around they regret doing that as every day of January feels a year long; the good times are over and they are broke.
Interestingly, there are hotels in Mombasa that allow guests the chance to deposit a small amount, only Sh2,000 every month, so that come December, they have built up a nice reserve.

There is another way though to go about this; fractional ownership of a property can put your own holiday home within your grasp.

Think about it for a minute; you can have a luxury villa on the beach front on the African Coast or a lovely Masai Mara holiday chalet. You can go scuba diving, go on game drives, and have seven course meals with massages and yoga. There is a long list of luxuries available to you.

Owning a vacation home is a dream of most people, but the lack of capital or limited finances puts a stop to this idea. Then too, how logical would it be to own a home that you only use for a small portion of the time and it stands empty the rest of the year.

Fractional ownership has created a trend in the West that allows far more people to afford the costs of a holiday home than before. So what exactly is fractional ownership and how does it work? It means you become the deeded owner of a specific asset. This can include homes, yachts and aircraft. Through fractional ownership you as an individual are granted an ownership share of the specified asset, which comes to a certain percentage. This means you are buying only a partial interest in the asset.

As a fractional owner you thus have the right to make use of the asset for a number of hours each year that has been predetermined. You also can make use of these hours on demand. The initial owner [fractional provider] manages the property. This means he/she provides services and maintenance regarding the property. This can include drivers, gardeners, yoga trainers, chefs or any other service personnel needed to run the fractional property.

The way this works is that the fractional owner that has the most shares [percentage] ownership of the house will get the most access [hours] to the house. The interesting thing is that you can still get all the benefits that comes with staying in a luxury villa or home for up to one week every year if your ownership is as little as two percent.

There are several advantages to the fractional ownership concept. You can give a loved one or a family member a holiday as a gift, by nominating them to take the time that is allocated to you for a year. The other advantage is that the capital contribution that you have in the percentage that you own continues to be an asset for you and can be transferred and sold to third parties like any other asset.

The initial owner [fractional provider] will form a company. This company usually becomes the owner of said property and then shares are offered to the would-be fractional owners. The fractional owners, who now own the property jointly on a pro rata basis, are then liable to pay the managing company their pro rata shareholding as well as a nominal service fee.

The Companies Act and the Articles of Association regulates the relationship between the management company as well as the owners.

Fractional owners
When there are not a large number of fractional owners, there is no need to form a management company to own the property. Under common tenancy the ownership can be vested to the fractional owners jointly. Each fractional owner is then allocated a pro rata percentage ownership according to the monetary value of his contribution. This means that the title deed is jointly held by all the fractional owners.

One of the common and most advantageous factors of fractional ownership is the risk sharing. A sole owner to a property has to bear the risks of damages and maintenance alone. Whereas with fractional ownership the risk is distributed amongst the owners and therefore greatly minimised. The risk is distributed on the pro rata basis of the percentage that each fractional owner has. This means depreciation, damage to the property or complete destruction is therefore shared.
As with everything in life there are not only advantages, but disadvantages. The biggest drawback is the loss of privacy. As you are sharing the property with all the other fractional owners, you only have access to the home as per the percentage [in hours] of what your share entitles you to.

The other great drawback for fractional owners is the risk they all share should there be negligence on the part of one of the co-owners. For example if one party is negligent and the property burns down, all the fractional owners lose out.

On a whole though, despite the risks, fractional ownership gives people access to luxury items that they would not be able to afford under sole ownership. In the case where the co-owners are not strangers, but know each other, fractional ownership becomes a very good investment.