As fractional ownership increases in popularity, there are still those who confuse it with timeshare. We look at the difference between the two.
Fractional ownership is an increasingly visible and popular way of buying overseas property, especially with the recession scaring people away from buying full freehold properties. But there is still confusion surrounding the difference between fractional ownership and timeshare, and it is important for potential buyers to establish the differences between the two.
Nick Turner, vice president of business development at The Registry Collection says: "Both of these business models are a form of shared ownership in leisure properties or holiday homes. The similarities end there because in every other aspect, fractional ownership and timeshare properties are worlds apart.
"Timeshare involves the purchase of, typically, one or two weeks per annum use share and it is not a deeded purchase. Fractional properties have to offer a minimum 1/13th ownership share to qualify as a fractional purchase, while having a maximum of a quarter ownership share. The purchase is often a deeded ownership."
Piers Brown, founder of The Fractional Life says: "Timeshare is simply buying the right to spend a specific amount of time in a property, while fractional ownership is an actual deeded interest, in that you own an equity stake in the property."
Turner says that the two options usually have very different buyer profiles too: "A timeshare will often be bought by a middle income family or couple looking for a holiday home they can enjoy a couple of weeks each year, with the advantage of being able to exchange it for others of commensurate quality around the world through an exchange network.
"A fractional property is an asset-linked real estate purchase bought by someone who could probably afford to buy the property as whole ownership, but who doesn't want the hassle of servicing the swimming pool, looking after the property and gardens year-round and is savvy enough to appreciate the value of only paying for the period they are able to use it - buying a luxury lifestyle at a fraction of the cost."
Timeshare, as most people are aware, has become something of a dirty word in the media, thanks to the unscrupulous practices of a minority of practitioners. So how can fractional ownership establish a separate "brand" from timeshare?
Steve Last of Owner Groups says: "For fractional ownership organisations, the problem is to position themselves closer to the "real ownership" end of the scale. This means emphasising the economic benefits and things that an owner can do and a renter can't. The key one, of course, is the ability to participate in any growth in value, but in general fractional resorts also provide far more facilities to owners than timeshare does, with a more exclusive, lower volume market."
Brown says it's worth checking whether any fractional seller is a member of The Fractional and Shared Ownership Trade Association (FSOTA). He adds that reputable sellers will be completely transparent throughout the sales process and, like any property transaction, always recommend the buyer uses a legal representative prior to purchase.
As for timeshare, opinion is divided as to whether the industry can recover from the negative publicity it has received.
Last says: "Timeshare operators who are open about the real advantages of what they offer, but do not claim things that are dubious, should flourish because for some of the holiday accommodation market they do have big benefits. The public today is probably inclined to make much smaller investments in personal long-term leisure facilities than in recent years."
But Brown does not think recovery is possible: "In the UK and European marketplace, unfortunately not. The mis-selling that went on in the late 80s and early 90s has seen to that. There are however thousands of very happy timeshare owners, and the Organisation for Timeshare in Europe (OTE) does work hard to ensure standards are upheld within the industry."
According to OTE, the governing trade body for the industry, the industry is working hard to clean up its act. Complaints about OTE member timeshare resorts and operators have been reducing steadily year on year, falling by a third between 2004 and 2007. In 2007, OTE's consumer desk received less than 125 complaints about OTE member resorts.
Whatever option you decide to take, the huge range of various fractional ownership and timeshare schemes on offer means that one thing is absolutely vital: Do your research and make sure you have good legal advice.
Some information contained within this article may have changed since it was first published. HomesOverseas strongly advises you to seek current legal and financial advise from a qualified professional.