Written for The Property Magazine by Maya Fisher-French

Simply put, fractional ownership comprises a group of people who get together to buy a holiday home, sharing costs and allocating vacation time, usually on a rotating basis. Sounds like syndication? Well there is a difference. And, unlike timeshare, it's about investment as well as the emotional aspect of owning your own holiday home rather than going into a mass-market timeshare unit.

With property prices still climbing, fewer people can afford to own a holiday home. Henry Greyling, the chief executive officer of Seeff's Golf and Leisure Joint Ownership Division, says that holiday homes are usually the most under-utilised asset any investor can own. 'Most owners of holiday homes manage to get to their place of relaxation a few weekends a year with maybe a week or two at year end. This means the asset, which is probably the homeowner's second most valuable after their primary residence, is under-utilised by at least 90 per cent.'

Fractional ownership fills the gap between whole ownership and timesharing. 'It appeals to people who want a luxurious second home but can't justify the high cost of ownership and maintenance of something they would realistically only use a few weeks a year,' says Seamus Moore, project manager of Pam Golding International Projects.

Moore says the earliest type of fractional ownership evolved when a group of friends or relatives simply shared the cost of a holiday home.

'This was all well and good until the parties had an argument, one wanted to sell or one died.' From this an industry has been born with companies involved in the selling and buying of fractional ownership properties (otherwise known as property syndications), taking out the emotional factor involved with family and friends.

Fractional ownership can be a very lucrative investment, both from an income perspective, if you choose to rent out some of your weeks, as well as from capital growth as leisure property prices are growing at around 25 per cent per annum.

Managing director of Pam Golding Vacation In Property (Pty) Ltd, Jose Ventura, says syndications are a thing of the past. 'We see the future in people who want two basic options in a holiday home: one, that it is hassle-free; and two, that it has capital appreciation. Fractional ownership provides this.'

The company's Private Club where holiday homeowners will be able to swap weeks at other resorts or estates according to a pre-determined system. You could then choose to spend two weeks at your 'own' home, two weeks at another and rent out the remainder of available weeks.

DJ Syndico is an investment company that develops its own property syndications, which it promotes as investment opportunities with the bonus of providing holiday homes. Mabalingwe Country Club in Limpopo's Waterberg, is one of 22 properties it has developed across the country.

Using Mabalingwe as an investment example, 10 investors each buy a 10 per cent stake for R385 000 in the company which owns the property and, in return, they each receive five weeks a year at the luxury holiday home.

DJ Syndico allows 60 per cent of the investment to be bonded over 10 years. Assuming you take the bonded option, you could use half of your allocated weeks for your personal use and then rent out the other half to pay towards your

At Mabalingwe, the property is being let out by DJ Syndico at R2 500 per day. If you rented out 16 days a year you would net R40 000. On a bond of R228 000 (which is 60 per cent of the purchase price) over 10 years, your annual repayment would be in the region of R35 000, which would be more than offset by your rental income. Once your bond was paid off you could either enjoy more holidays or continue to rent out for a passive income.

Fractional ownership provides both a legal and use structure with many of the benefits of whole ownership at a fraction of the cost, while doing away with the challenges and pitfalls of renting out fully owned property during unused time.

There are various models that companies use to access the fractional ownership market. Resonate Luxury Lifestyle Portfolios, for example, is part of an estate agency (Orange Circle) that identifies a place with ideal properties – such as maximum seasonality – as a vacation home. 'We buy in areas that are in demand twelve months a year,' says Thys Geyser, managing director of Resonate Luxury Lifestyle Properties. Once they have brought in enough buyers, a board of directors is formed by the owners who then manage the on-going running of the home.

'We work with them until the property is running smoothly and then they manage it themselves,' says Geyser, although they do offer on-going letting and housekeeping services. The housekeeping aspect is important to ensure that new occupants have a clean and homely environment.

'Prior to each family's arrival, the staff goes grocery shopping and unpacks personal items from storage. They can pretty much leave anything – bikes, toys, or clothing. Once there, owners have access to transportation, round-the-clock support service and amenities on a par with a five-star hotel. When they leave, their belongings can be put back in storage and the unit is staged for the next round of owners'.

Many agencies involved in fractional ownership also offer options overseas in France, Spain, Portugal and Mauritius.

Unlike the estate agency model, fractional agents retain an interest in the property, manage the day-to-day running and on-going maintenance and facilitate resales and letting.

Moore warns that when a group of people buy into a property, as opposed to the investment company model, it is not advisable to allow the shareholders to take a mortgage on the property because if one member defaults, it has an effect on all of the shareholders.

Frederé de Jager, managing director of DJ Syndico, says they take precautions against defaulters. They screen investors – who must earn a minimum amount – and insist on a 10-year loan period as opposed to the usual 20, so that there is room to move if a person defaults. Financing is organised through the company and monthly bond payments are made to independent auditors who pay the bank.

If payments to the auditors are not made, and after due warning, the10 per cent share will be sold at a value equal to the surrender value at the bank, and members will forfeit their 40 per cent cash deposit.

'It is punitive but so far we have not had a single case of late payment.'

De Jager maintains that it is important to look carefully at the structure of the investment company involved and ensure that all payments for levies and mortgages are made to an independent third party auditor.

Links to articles:

Fractional Ownership News and Articles

Fox Business News - (1/21/2008)
Fractional Property Ownership - Owning a small piece of big luxury

From CNN Money - (6/7/2007)
Deluxe vacations on the cheap. Private residence clubs, or fractional's, let owners share a second home with five-star service

ABC 30 News Article - (5/28/2007)
Think You Can't Afford Your Dream Vacation Home? Think Again

From ABC news Los Angeles - (5/17/2007)
Living the High Life With Shared Ownership

Hotels Magazine review of fractional vacation ownership - (15/03/2007)
Fractional Property Ownership. A Home Away From Home

Golfonline Magazine - (3/1/2004)
The Ultimate Time-share. High-end homes for the traveling golfer

Bankrate.com - (12/11/2003)
Fractional ownership: Get a piece of a vacation home