A guide to the different categories of vacation ownership

Do you understand the difference between classic fractions, high-end fractions and Private Residence Clubs?

Most people don’t – but it is important that consumers understand the differences between the various categories of the vacation ownership market which are promoted as ‘fractional ownership’. So says Dirk Wilson, Co-founder of fractionalownership.co.za and member of the South African Association of Fractional Intermediaries (SAAFI) Working Committee.

“A recent survey conducted by fractionalownership.co.za showed that although the South African vacation investment community is just beginning to understand the differences between timeshare and classic fractions, there is still a large proportion which needs information on the various co-ownership and co-usage vehicles available in the market.” Wilson provides a quick guide to the three main fractional ownership and usage structures.

“Classic fractional ownership of property is shared ownership and exclusive usage of luxury holiday property in high-demand estates and areas. Fundamentally, you purchase a share in a company that owns and manages the property (the asset) – be it a serviced holiday home, luxury hotel, or guesthouse. Your share value is directly linked to the value of the actual property, so you are likely to see capital appreciation on your investment, as well as being able to make use of the free holiday time allocated to you forever through the usage roster. Basic house-keeping services are included.

“High-end fractions are similar to classic fractions, but offer a slightly enhanced structure where you purchase into one or a portfolio of properties with flexible usage and added luxury hospitality services (such as on-line reservations, private concierge and inter-portfolio and international exchange). Your portfolio is spread across a number of properties, and there are often ‘nice frilly bits’ added in, e.g. use of a helicopter, membership clubs, and so on.”

Fractional ownership is still often confused with timeshare. Although the usage structures can be similar, they are very different when you consider the ownership aspects. Wilson outlines the difference between the two: “With timeshare, you only own the use of time in a property and exchange programme; classic and high-end fractions offer you shared ownership underpinned by the value of the property plus adequate usage. In many cases exchange programme benefits and income-generating rental schemes are included.”

“Private residence clubs (PRCs) offer you a membership purchase into a resort environment, usually at 5- or 6-star level. You are likely to be offered concierge services, exclusive access to a luxury boat, helicopter or (in some cases) a private plane, as well as to the various amenities of the resort. Exchange with similar resorts around the world is typically included. PRCs are a purchase into a 5-star lifestyle; the investment component is the secondary motive. This is like belonging to a private members’ club.”

Wilson says most companies promoting fractions and PRCs all have one thing in common: “You are only purchasing your share of and the time you require in one or more luxury properties. The price tag is determined by the number of shares you purchase and the usage flexibility, as well as the additional value-added hospitality services allocated.”

He says with all these categories of vacation ownership there will be growth “because you are buying into property, after all. Some have a more clear-cut investment aspect than others which may be more lifestyle-oriented”.

He alerts investors to be wary of the ‘promised returns’, to do their research and to ensure that the company that they are dealing with is registered with SAAFI. “SAAFI is the regulatory body that governs fractional ownership promoters as well as service companies in South Africa, with strong consumer protection objectives. Approved SAAFI members have a strict Constitution and guidelines to adhere to. Ask your promoter or service company to provide you with proof of approved membership.”
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