Fractional Ownership News

Golf estates embrace the new investment kid on the block

Date: 28/09/2009
Article source: Business Day

Brent Melville from Business Day.

ANY developer will tell you that your best chance of achieving top returns with any property investment is to get in early. Just ask investors at Sparrebosch Estate near Knysna, who have banked returns in the order of 400% over the past five years, or buyers at Steenberg Golf Estate, who have seen their homes virtually double in value over the same period.

The new investment kid on the block is fractional ownership. Essentially a dressed-up form of property syndication, the concept has been around a while, although in SA it is still in its infancy.

Richard Santulli, founder of US company NetJets, is largely accredited with formalising the idea, structuring co-ownership schemes for business-class private jets in the mid-1980s. Ten years later the concept moved into full flight, when investment guru Warren Buffet bought into the programme, eventually buying out NetJets altogether and housing it with multinational Berkshire Hathaway. 

Internationally, fractional title has been used to great effect to leverage ownership of luxury assets — including cars, yachts and jets.

In SA the big uptake is primarily into real estate, homes and accommodation that otherwise would be outside the realm of affordability. As with Buffet, buyers are seeing the investment potential in shared assets that maximised use of high-end assets, such as a seaside home.

Global growth in this market segment over the past few years has been nothing short of astonishing. Real estate advisory company Northshore Real Estate Solutions last year identified 349 fractional developments in the US, Caribbean and Canada alone, a 39% increase on 2005, while fractional volume sales reached a record $1,65bn during the year. 

In SA there are an estimated 30 fractional title destinations, actively marketed by about 13 players which are registered with the South African Association of Fractional Intermediaries, a self regulatory body. But as many bright and shiny new products go, there are still unknowns as far as the capital growth potential of the model and still to be proven.

Jose Ventura, MD of Pam Golding Properties’s Vacation in Property (VIP) division, estimates a growth rate within the fractional and so-called private residence clubs of about 150% year on year. “The popularity of the VIP option comes from the benefits of equity-based deeded vacation home ownership combined with the prestige and exclusivity of a private club membership, without the financial and maintenance constraints of full home ownership.”

VIP’s flagship project is the private residence clubs at Pezula, which represents an equity based investment “club” of 70 shareholders, who are able to choose from five two bedroom residences at the resort for up to three weeks a year. Investors have access to Pezula’s enviable portfolio of international residences located as far afield as the Bahamas, Mexico, Tuscany, the Caribbean and Canada.

Tony Matkovich, director of the Private Golf Company, an affiliate of Hayes, Matkovich & Associates, says: “Traditional syndication comprises a group of friends or family combining to buy a holiday home. There are pitfalls to that, in the form of upkeep and maintenance and disagreements as to the running of the property.”  Matkovich is no stranger to the international golf fraternity (his godfather is Gary Player), so he has a good grasp of the business end of the club. Not surprisingly, Private Golf Company’s backers are a veritable who’s who of South African business, and include former Didata chairman Peter Hird, Safika Holdings’ Moss Ngoasheng and Jabu Mabuza, MD of Tsogo Sun.

“It’s all about credibility for the investor,” says Matkovich, who likens Private Golf Company’s four fractional portfolios to golf estate unit trusts. “We have no doubt that value and asset returns will gravitate back to leading and established golf estates, with shareholders benefiting from the capital appreciation of our portfolios, as well as enjoying the luxury lifestyle associated with SA’s leading golf estates.”

The company’s philosophy of investing with more “financially secure” estates is reflected in its first offering, the so-called Founders Portfolio, which is a selection of eight luxury and fully owned properties valued at more than R40m at Arabella, Fancourt, Pinnacle Point, Zimbali, Prince’s Grant, Zebula and Elements. 

The portfolio, fully subscribed less than a year after launch, offers ownership on a 1/26th share basis for just more than R1,5m, providing holiday usage across the eight properties for a total of 16 weeks a year.Matkovich says that clearly, this is more time than is likely to be used by shareholders, so low periods of usage are put into a rental pool, which strives towards the financial self-sufficiency of each portfolio.

He says that prior to the launch of Private Golf Company last year, Hayes, Matkovich & Associates’s market research had highlighted the need for more affordable and practical investment solutions.“Private Golf Company was launched to provide an investment solution that takes ownership to the next tier, providing holiday flexibility (including a choice of destinations), real asset appreciation and additional annual returns, backed by an investment model founded on service objectives.”

Mike Struthers, CEO of fractional ownership company Game for Life, says the industry has witnessed an explosion of different players.  “With relatively few barriers to entry, new entrants, including big real estate agents, have adopted a short-term approach. There are very few dedicated companies that have a long-term vision as to the viability of the industry, and have backed that up with back office servicing,” he says.

Game of Life, which has built a R150m suite of investments at top-class properties ranging from coastal estates at Pezula and Zimbali, and inland developments at Clarens and Pecanwood, underpins its offering with membership of its exclusive Leisure & Lifestyle Club, where members can exchange their time in a specific home for time in other luxury villas of a similar calibre.

Struthers believes it is the provision of options and added convenience that will ultimately differentiate the different players in the market. “Investment decisions are never strictly financial,” he says. “The companies that can offer something special will be the winners”.

Article courtesy of Business Day, written by Brent Melville