As summer draws to a close - another summer of poor weather in Britain - I‘ve noticed one property business model has almost disappeared from sight: Fractional Ownership.
It’s a shape-shifting model at the best of times, often changing name after a series of mixed reviews from buyers around the world. Now some of its (fairly few) devotees call the principle ‘Destination Clubs’, for example.
But whatever its name it remains based on the principle of properties sold in one-quarter or one-13th shares to different buyers, who then use their allocation, or sub-let it further. On top of often-hefty purchases prices there are frequently large service charges, too.
It’s that allocation system - say three separate months dotted throughout the year for those who buy ‘a quarter’ - which has proven the undoing of the business model in the UK.
The model collapses when applied to poor-weather tourist areas like the south west, Wales and East Anglia, where the attractions close in winter. There have been over 20 FO schemes in these areas, most of which have collapsed for lack of support because:
- if your ‘share’ of the use of the property includes autumn or winter months (which will inevitably be the case) the buyer’s intrinsic enjoyment and frequency of attendance will be low - you simply won’t get good value and you won’t turn up;
- for the cost of a fractional home, a buyer could probably pay at least the deposit on a permanent holiday home in the same area - then let it out and recoup their outgoings;
- there is still uncertainty (and sometimes deliberate obfuscation from experts) over the principles of a resale market. Some fractional homes have to be resold to developers, while others fight it out for buyers in the extremely uncertain open market.
These arguments do not apply in year-round sunny spots like Florida and the Caribbean where FO remains relatively popular. It also works in areas, even in the UK, with year-round tourist facilities whatever the weather (golf courses in Ireland and Scotland, for example, or walking and climbing areas which remain big attractions even in winter).
But even in sunnier climbs, FO is falling in its appeal - there are fewer advertisements for it this year than in the recent past, far less money spent on PR by schemes, and as bricks and mortar generally becomes a less trusted investment, the FO principle is instead being switched to yachts or even private aircraft.
We may just be witnessing the gentle decline of the fractional principle as applied to property. Like the British summer just ending, it may be going out with a whimper.
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