Dave King and Steve Wakeling are buying a home together in St Lucia. The
appeal is obvious: situated directly on a golf course, a few hundred yards
from the beach, in the picturesque northern part of the Caribbean island,
their three-bedroom villa at The Landings comes fully furnished, with a
concierge service to die for. And it is only costing them £100,000 each.
Yet King, 52, managing director of a service company in Redhill, Surrey, and
Wakeling, 40, a company director from Brentwood, Essex, have never met. Nor,
unless something goes badly wrong with their purchase, do they intend to.
The pair are at the forefront of a property trend that is already a
multi-million-dollar industry in America and is poised to take off among
British buyers: fractional ownership. Rather than acquiring a property
entirely on their own, buyers are matched with others and buy it together.
As a result, you can enjoy a holiday home far grander than anything you could
have bought on your own. Invite your friends there, and you don’t even need
to tell them it is only really yours for part of the year. And since you own
a share of the title, then if property prices rise, you share in that gain
when you sell.
King needed little convincing when his accountant put him on to the scheme,
which is being marketed by the Best Group, one of the pioneers of fractional
ownership in Britain. In return for their respective £100,000 stakes, King,
Wakeling and three others each have a fifth share of the property, and in
return are entitled to use it themselves — or let it out — for 10 weeks a
year.
King had been considering for some time buying a bolt hole abroad, perhaps in
Spain, Florida or the Caribbean, but thought again when he borrowed a
friend’s villa in Portugal two years ago. A pipe sprung a leak and the owner
had a struggle to sort out the problem at a distance.
“I’m busy and I don’t need the aggravation of looking after a property when
things go wrong,” he says. “I don’t want to own a property outright and to
be responsible for it all year round.”
Wakeling, a cricket fan who is hoping to spend some of his weeks in the villa
next February or March when Cricket World Cup matches are held on the
islands, thinks much the same way.
“I think St Lucia is 10 years behind Barbados, and the investment
opportunities are there,” he says. “Fractionalisation means you can buy a
big property and have the benefits of a big property for a smaller input. ”
He’s also attracted by the impersonal nature of the relationship with the
other buyers. “I don’t think we’ll be having coffee mornings together,” he
says. “The management company will sort out any problems for us. If I want
to get out of it any time, I am free to do so, and the management company
will put it up for sale for me.”
But hang on, isn’t there something vaguely familiar about the whole idea? In
fact, isn’t it all rather reminiscent of that old chestnut, the timeshare?
Two decades ago, this, too, was billed as “the next big thing” but timeshare
was then thoroughly discredited as a result of a series of scams, most
notably on Spain’s Costa del Sol.
Not at all, says Francois Pienaar, the former South African rugby player, who
is one of the backers of Best Group, and like others involved in the
fledgling fractional ownership, is anxious not to see his product tainted
with the dreaded T-word.
“We’re not selling timeshares,” insists Pienaar, who captained the Springboks
to victory in the 1995 Rugby World Cup. “We are selling ownership in a top
development that is affordable.”
Besides the St Lucia development, Best Group is initially selling “fractions”
in other high-end developments in Barbados, Cape Town, South Africa, and
Queenstown, New Zealand. Under its model, which it has dubbed “pentic” (from
the Greek “penta” for five and “tic” for tenancy in common), owners acquire
direct ownership of one fifth of the value of the underlying title of a
property, and are allocated time in blocks that rotate from year to year.
The properties will be fully furnished and managed, with hotel-style services
including towel and linen changes and even pick-ups from the airport.
Such luxury and convenience, of course, comes at a price. The management fees
are expected to come to about 3.5%-4.2% a year, although it should be
possible to recoup some of this by renting out the property for some of the
10 weeks. Finance is available for up to half the purchase price, and owners
will be free to sell whenever they wish.
Keith Stewart, by contrast, does not think the buyers at his Pezula Private
Island & Residence Club in the Seychelles should be the kind of people
who need to seek financing. In fact, he has already had offers to buy
outright, for about £2.7m apiece, several of the 10 enormous four-bedroom
seafront houses he is building on the private island of Anonyme. No dice.
They will be available only as part of a scheme that follows the model of
his now sold-out fractionally owned properties at the Pezula hotel, spa and
golf estate in Knysna, South Africa.
For £145,000, buyers acquire shares in a Mauritius-based company that owns the
property, entitling them to spend 21 days a year at what Stewart modestly
proclaims will be “the world’s most exclusive club”. (Oh, and there is also
a hefty £3,000 service charge, which works out at about about £140 a day).
The Pezula Group acquired the 20-acre island freehold from the daughter of a
Seychelles politician. The houses, each with private pool and beach, will be
complemented by a smart hotel with a spa, tennis courts and a raft of
services and activities.
If each house were owned outright by one wealthy family it would scupper the
whole scheme, Stewart reckons. Properties would be left empty for long
stretches of timem and deprive the hotel of the business it needs.
Fractional ownership can bring other advantages. Samuel Seeff, chairman of
South African based Seeff Properties, says a scheme he is launching next
year on the island of Mauritius will also be a way of circumventing a rule
requiring overseas buyers to invest a minimum £300,000 in land and to
demonstrate liquid assets of more than £1m.
Six months ago, Janet Mitchell, 50, a television producer from Yorkshire who
currently lives in Johannesburg, bought a fractional share of a
Balinese-style property at the Zimbali golf and hotel complex on the Indian
Ocean, near Durban through Seeff. She paid R417,000 (£30,000) for four weeks
a year in a four-bed house.
“There was no way I could afford Zimbali,” she says. “But now I can spend time
in a R5m house at one twelfth of the price.”
All sounds too good to be true? The companies creating the fractions are
obviously not doing so for nothing: Best Group, for example, says about 83%
of the price it charges goes on the property, itself. Besides the company’s
profit margin, the remaining 17% covers legal costs, the local equivalent of
stamp duty and estate agency fees as well as furnishing, decorating and
equipping the home — although Best Group insists all this could cost an
individual buyer more.
Some independent experts, neverthless, advise caution. Graham Platt of the
International Law Partnership, specialists in overseas property, says people
should take care before opting for any new product. “The resale market is
largely unknown, and if you find a buyer, they may well be advised by a
lawyer like me, suspicious of all these structures, who will say be very
careful,” he says.
Simon Conn of Conti Financial Services, an overseas mortgage provider, also
fears that, as the fad for fractional buying gathers pace, the sector will
begin to attract its share of dodgy developers. “We are finding developers
are getting into this as a money-making scheme, but they have no track
record to guarantee the success of their schemes,” he warns.
What is fractional ownership?
So is fractional ownership just a fancy form of timeshare? Not at all, say its
proponents. With timeshare you have only the right to use a property for a
set number of weeks a year; fractional ownership gives you an actual share
of the bricks and mortar.
Timeshare ownership has evolved from the right to a set period of time in a
specific holiday property each year to more complex “holiday bond” type
arrangements, allowing holders access to an array of properties. The shares
become tradeable assets.
Fractional ownership also gives periods of time in a specific property, but
buyers actually own part of the equity in the property, often through a
company. This means if the price of the property goes up, the value of your
share will rise accordingly. Buyers should always get contracts checked out
by a lawyer to ensure that there is clean and legal title and no barriers to
being able to sell your share on the open market whenever you choose.
Timeshare and fractional arrangements both usually carry service charges.
Share options
A two-bed, two-bathroom apartment at Sugar Hill, near trendy Mullins Beach, in
Barbados. A 10-week fraction costs £95,000, with a management fee of £3,751
pa; the estimated rental return is £4,405. Best Group, 0845 652 0771,
bestpentic.com
This one-bed seafront apartment at Camps Bay Terrace Suite, Cape Town, has a
private pool. A 10-week fraction costs £100,000, management fees are £3,000
pa and rental return is an estimated £2,800 pa. Best Group, 0845 652 0771,
bestpentic.com
Twenty-one days a year in one of 10 4,300sq ft beachfront houses at Pezula
Private Island & Residence Club, one of only six privately owned islands
in the Seychelles, costs £145,000 plus £3,000 pa service charge. Pezula
Group, 00 27 443 025 332, pezula.com
Four weeks a year, in two rotating two-week slots, in a five-bed house at
Zimbali near Durban, South Africa, costs from £27,000 to £33,000 (depending
on sea view), plus £500 pa service charges. Seeff Properties, 00 27 113 173
840, seeff.com
