As the fractional property market attracts more interest in the UK, the issue of potential resales is one which affects both lenders and buyers. So what are the prospects for an established fractional resale market?

Responsible sellers are at pains to point out to potential buyers of fractional schemes that theirs is a lifestyle purchase, not an investment. But buying into a fractional development means you own a percentage of the deeded freehold to your property, and you are free to sell it on subsequently – whether that be at a profit or a loss.

Check the small print of any development you are considering buying in to. At some schemes, the developer has first refusal on any resale fractions – especially if it has a significant inventory left to sell. At others, existing owners will be given the chance to add to their share before resales are offered to the general market.

Fractional resales in Tuscany

At Castello di Casole in Tuscany, a development which was launched, initially to the American market, in 2006, four buyers have successfully sold their fractions. Ownership representative Marina Palmerio says: “Of the four resales we have seen, all achieved quite a significant appreciation in value, but that is partly due to the fact they were purchased in dollars, and sold in euros, which the developer converted to in 2007. We give people the option to sell through us, or through their own agent, but it makes sense to go through us as we are actively selling fractions in the development. We do currently have some more resales available, and they aren’t moving as quickly, due to the economy. Last year resales were selling in two to four weeks. We also currently have some developer inventory, but this is almost sold out. When that is gone we may see the resale market picking up until we launch our next phase.”

In the US, where the fractional ownership market is more mature than in Europe, Mel Weinberger of law firm Holland & Knight advises clients to check that subsequent purchasers will have the same use rights and privileges as the original purchaser. They should also determine the amount of transfer fees, if any, that they or the resale buyer must pay.

Les Milton of The Fractional Ownership Consultancy says his company provides a framework for developers and initial buyers of fractions which sets out a process for resales, should it be needed. “With our product Ownershare the developer does not have first refusal on re-sales.  Sellers must first offer their fraction to the other co-owners.  Should there be no interest then they would be allowed to sell in the open market.  At this point the developer may choose to be involved. Over the last seven or eight years we have no record of anyone losing money on the sale of a fraction.”

Ski resort fractional resales

Weinberger emphasizes that whether a resale makes a profit depends very much on the development in question and the state of the property market. “With respect to certain older fractional projects in the highest quality destinations, especially ski resorts, I’ve heard stories of substantial appreciation in fractional prices. As the fractional market matures – and the economy recovers – I would anticipate fractional prices to continue to rise in certain markets, but I would never advise a prospective fractional purchaser to anticipate a profit on resale.”

South Africa fractional properties

In South Africa, where there was a big rush of fractional purchases between 2006 and 2008, many owners have been badly hit by the recession and are now looking to sell their shares. Dirk Wilson of fractionalownership.co.za says: “We have spoken to many happy shareholders who have sold their shares at 20 to 30% more than they paid for them less than two years prior, but it is important to note that owners must not expect a profit on resale, especially in the current market where fractional sales are down across the world and we are in a buyer’s market. What we are experiencing now is that there are an increasing number of resales coming onto the market. Feedback indicates that many shareholders (resellers) are being forced to sell their fractions due to financial difficulties during these tough economic times.”

Fractional resale listings

Buyers and sellers of fractional resales – as well as “new” fractions can make use of the listings service offered at www.fractionalindex.com. The site features fractional properties, condo hotels and private residence clubs, as well as the latest industry news.