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Fractional ownership trends for 2012 and how to profit from them

3rd January 2012

David Disck Fractional Real estateDavid Disick of The Fractional Consultant ponders what the year ahead will hold for fractional ownership.

As we embark on a new year, it is a good moment to reflect on what trends in fractional ownership of vacation homes we may anticipate in 2012—and how we may profit from them.

1. Predominance of high-end market sales

No matter what the economy, the very affluent always have discretionary income to spend on vacation home property—if they choose to.  The highest ends of the market are—and always have been—the safest market niche to occupy.

2. Continued competitiveness in developed fractional markets

Places that have already seen significant growth and development of fractional real estate—North America and Western Europe—will continued to present stiff competition among properties to win over hesitant purchasers. 

Here, developers of new properties could consider exploring relatively under-served niche markets and create projects that have a good chance of satisfying the as yet unmet vacation home needs of potential purchasers.

Another possibility is to expand the geographic and demographic profile to which one normally markets.

3. Potential fractional opportunities in less developed fractional markets.

In geographic areas where fractional ownership is relatively new—the Caribbean; Central and South America; Eastern Europe; the Mid-East and some parts of Asia Pacific and Australasia, well-conceived developments without too much primary competition will have better chances for success.

Here, consumers will need to be educated as to the benefits of fractional ownership and, importantly, how fractional ownership differs from timeshare.

4. Price-conscious buyers still looking for discounts

Before 2008, traditional “lifestyle” vacation home purchasers would boast, “I bought a vacation home.” 

But after a United States recession that saw prime vacation homes losing as much as 40% value of their value—and sometimes more,—some purchasers today want to boast, “I bought a vacation home and got __% off its price.” 

Or, at the very least, today’s buyers want to feel that they got “a great deal” on their vacation home.” 

Developers need to learn what their customers consider “a great deal”—not necessarily to fulfill this desire but to try to find creative ways to appeal to this motive and still maintain a profitable business. (Some suggestions follow below.)

5. Need for extra promotions/gifts to entice price-conscious prospective fractional ownership purchasers to close

To appeal to price-conscious fractional purchasers, developers may consider including freebies such as golf or spa memberships and free ski passes or other recreational privileges. 

Or, developers may include gift items with the purchase that have high perceived value (and perhaps can be purchased in bulk at discounted prices) whose value is not easily quantified monetarily—such as electronics.  (The value of the gifts, of course, has been budgeted and is already included in the price.)

Alternatively, seriously interested and qualified potential purchaser may be offered shopping and dining sprees at participating local stores and restaurants where merchants discount to the developer the price of coupons for goods or services.

Or, coupons for air or private jet travel may be included in the sales price.

6. Need to appeal to “Value-Conscious” purchasers

“Value-conscious” purchasers are affluent buyers who are perfectly capable of paying full-price, but are reluctant to do so because of extensive price discounting.  Understandably, no one—at any economic level—wants to overpay for any purchase.

There are still many qualified, affluent potential purchasers exploring the vacation home market—no matter what current economic headlines proclaim.

To persuade value-conscious buyers to move forward on a fractional vacation home purchase, developers will need to offer a “Wow!” factor—something valuable, unique and attractively priced that cannot easily be duplicated at any price elsewhere:   a one-of-a-kind location, spectacular view, prime access to the resort’s amenities, extraordinary spa, beautiful landscaping, high-quality finishes and decor—or a combination of many hard-to-find advantages.

In addition, one might include use of a yacht or a car while in residence; catered meals by a renowned local chef; massage treatments at home; or private jet or airline miles.

Offering prospective purchasers just a limited time after their site visit to act on the opportunity and limited availability of residence units can further encourage qualified purchasers to move off the dime and proceed with their fractional purchase.

7. Continued growth in the number of “Investment Funds” appealing to “Lifestyle-Investors”

The past half-dozen years have seen the growth—in the UK and then in the US—of a relatively new type fractional vacation home ownership structure, “Investment Funds.”

The funds appeal to sophisticated purchasers who want their vacation home to be more than just an emotional “lifestyle” purchase. They seek a vacation home investment that operates more like their commercial investments.  

The “Investment Fund” structure appeals to the motives of these “Lifestyle-Investor” purchasers.  Investment Fund purchasers own shares in a portfolio of homes to which they enjoy vacation access.  They pay investment and property management fees to a portfolio manager.  At a pre-set date—often after seven to fifteen years of ownership --they have an exit strategy: Their portfolio manager sells the portfolio of homes, hopefully at a profit, and distributes proceeds to the investors.

One can expect “Investment Funds” to continue becoming increasingly popular.
 
8. Continued public acceptance of fractional ownership of vacation homes vs. whole ownership

At a time when consumer financing is difficult to obtain, the lower price point of fractional ownership vs. that of whole ownership vacation homes makes feasible all-cash purchases by high-net-worth individuals. 

Obviously, the opportunity to share maintenance costs with other co-owners makes fractional ownership attractive to cost-conscious purchasers who only occupy their homes for a few weeks a year.

In other words, the classic reasons to purchase fractional ownership vacation homes are as compelling now as they have always been.


9. Reason to believe fractional ownership will continue to take market share from whole ownership vacation homes

Though the DOW Jones Industrial Average has just about recovered from its recession losses, some people continue to distrust Wall Street and want to invest their discretionary funds into something tangible that they can understand, such as real estate.

Furthermore, since bank savings accounts these days pay pitifully low interest, investing in real estate with its potential to grow in value over time and hedge against inflation seems like a smart, safe strategy for many consumers.

Since vacations have increasingly become a necessity in our stress-filled world, it is reasonable to expect that some discretionary funds will find their way into fractional vacation home ownership.  Fractional vacation homes require far less of an investment than whole ownership, permitting affluent buyers to purchase for cash and obviating the need for a mortgage.

To sum up:

Long-term prospects look bullish for fractional vacation home developers.

Though 2012 may still present sales challenges in many markets, fractional ownership continues to be a reasonable, effective and quite acceptable way for many affluent prospective vacation home owners to purchase their home/s.

The most successful developers will adapt to current circumstances and seek new and improved ways to meet the unsatisfied needs of prospective vacation home owners.  They will deliver even better ways for owners and guests to enjoy a variety of top-quality vacation experiences.  They will price their offering very competitively and will create compelling purchase incentives that prospective owners simply cannot refuse.

The development business isn’t easy.  But if it were, everyone would be doing it, right?


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What trends do you see in your fractional vacation home market?  Please add your comments below.


David M. Disick, Esq. consults with clients in the US and abroad.  He is the author of Fractional Vacation Homes:  Marketing and Sales in Challenging Times.  His book may be ordered from his website.

03/01/12

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