Fractional Ownership? We'll have a piece

Buying a part-share in a holiday home abroad is simple, stress-free and profitable, says Chris Wilson. Just don't call it timeshare

The old rules about buying second homes are being torn up and thrown out of the window. As of last month, "it no longer makes sense to own your own holiday home", says Bernardo Moya, of Prestigious Properties. Making money out of your property abroad through fractional ownership is the next big thing.

In the United States, fractional ownership is the fastest-growing segment of the property market - and now it is catching on here. "The financial changes that are coming in will transform the market," says Les Milton, of the Fractional Ownership Consultancy. "2007 is going to see a burst of activity in this type of ownership." Changes to the way fractions can be purchased will put a holiday home within reach of just about everyone and it can be very lucrative. "You can have a place in the sun for the price of a health club membership for two - and you can make money out of it every month," says Bryn Thompson, of Spanish Quarters.

Fractional ownership has been around for nearly 20 years but it has always been in the shadow of its evil cousin, Timeshare, a concept that makes everyone in the industry shudder. "We are nothing at all to do with timeshare," insists, well, everyone in the fractional ownership business. Yet despite a long and convincing list of advantages over conventional property purchase, until now fractional ownership has accounted for a only tiny percentage of property sales for British citizens up. Until now.

Matt Dimbylow got in on the act relatively early - in 2004. "We knew people in the States who told us about it," says the management consultant from Cheshire. The positive experience his friends had in Colorado induced him to look for it in Europe and already he is buying another fraction on a second development in Portugal.

"Fractional ownership is brilliant," he enthuses. "I'd recommend it to anyone. We've got all the holiday we can handle in a place my daughters love and we're making money out of it."

Even the most cautious forecasters see prices in Spain and Portugal continuing to rise at about 5 per cent per year. So as well as being able to purchase a share in a property for a fraction of the cost of buying a house outright, the Dimbylows have already seen a 20 per cent capital appreciation on their investment in just two years.

Mr Dimbylow is not alone in his praise of fractional ownership. Top of the list of its advantages is the efficiency. The average working person in the UK only gets five weeks' holiday a year. Even the very lucky can't manage more than eight weeks a year and yet if you buy a property abroad, you are paying for the whole year. On top of that, with fractional ownership, because you are only buying a part-share of the property, you can afford to buy something much nicer than you could ever fund outright.

"Our top-of-the-range package is less than £400,000," says Brigitte Urbano, of developers Oceanico. "And for that you are getting a quarter of a very luxurious villa." The cost of that villa to a single purchaser would be well over €1 million. In effect, you are spreading your investment and getting you a superior quality holiday home.

Another big attraction is the fact that you are buying into property run by a management company. You don't have to worry about what is happening to your home in your absence; you arrive to a clean, aired property with all the support you need.

"That was always a big problem with us," says Elizabeth White, who has just sold her house in France because she is buying into Spanish Quarters, a developer in Andalusía. "We were always worrying what was happening when we weren't there, which was nine or 10 months a year. We were burgled several times, the place was infested with rats and it always needed a day's cleaning when we arrived - and don't get me started on the garden." Those are the sort of worries that don't exist with fractional ownership.

So how can you get yourself a piece of a fractional property? Until recently, one of the limitations of the scheme was that you had to fund your purchase of a share with cash, or by borrowing on another asset. It is, for obvious reasons, difficult to borrow for a part-share of a property because banks were not able to secure the whole property for resale in the event of a default.

But what makes fractional ownership very interesting and within reach of most people, is the fact that from last month, it has become possible to buy your fraction with a mortgage from a British lender, provided you buy from a developer that uses a package developed by the Fractional Ownership Consultancy.

"The arrival of the Manchester Building Society is the reason why this market is going to get a lot bigger," says Ewa Petersson, of developers Vigia in Portugal. It is going to be able to offer loans of up to 70 per cent on a fraction of the house given the assurance that it can sell the share on the open market without having to sell the whole property.

But what is the entry-level price? The cost of second homes in the more desirable areas of Europe has been rapidly increasing over the past 10 years. A place in the sun isn't such a cheap option any more but with fractional ownership you can get a foot on the ladder for €36,000 in a new development on the coast or a top golf course in Portugal. Bryn Thompson, of Spanish Quarters, offers part-ownership of apartments in Andalusía for £158 per month.

So what are the possible pitfalls? With fractional ownership there is an obvious limitation in the dates of your holiday. Because of the fixed rota, you can't go to your house all August, every August: you will be restricted by the schedule.

But perhaps the single most important limitation is the type of property available. The overwhelming majority of properties available to purchase fractionally are new-build villas or apartments. So, if you want to renovate a ruined tower at the top of a hill in Italy with no roads or electricity, fractional ownership is not for you. Leave it to the people who want to have an easier life - and make a good investment out of their holidays.

" Fractional Ownership Consultancy: www.fractional.net; 0044 1481 747800; Oceanico: www.oceanicodevelopments.com; Andalucian Homes: www.andalucianhomes.com

What is fractional ownership?

In essence, fractional ownership is the shared ownership of a property. Usually, the title deed is divided into fractions ranging from a quarter to a twelfth. This give you the right to stay in the property for the corresponding fraction of the year. You can also sell your fraction whenever you choose. A management company runs the property and each fractional owner contributes to an annual maintenance fund. "Fractional ownership leads to contented people who make profits," says Les Milton of the Fractional Ownership Consultancy.

Check it out: A guide for buyers

• Make sure that you are purchasing equity in the property. If you are, it is by definition, fractional ownership; if you're not, you are being suckered into some bastardised form of the dreaded "timeshare".
• Buy your fraction through a developer. There are many ways to fall out with strangers you are sharing a property with (even more, if they are friends). A reputable developer has a contract that will cover all the eventualities.
• Ensure that the management company owns the property and you are buying your share from them. Simply adding names to a title deed can lead to legal problems later.
• Check the service offered by the management company concerning booking of dates, changing dates, renting your weeks, giving them to friends or family, maintenance of the property etc.
• Make sure the maintenance costs are fixed in advance. This should include a fund for upkeep and repair, the better developers will have a fund for completely refurbishing the property every five or six years.
• Convince yourself of the soundness of the resale market. Some developers offer a guaranteed buyback.

Fair shares in Portugal

"We are Mr and Mrs Average," laughs Amanda Brown. "So if we can buy a place abroad using fractional ownership, anyone can do it."

Amanda Brown and her partner Dave Smith, who both work in telecommunications, recently bought a quarter share of an apartment on a new development near Lagos in Portugal.

"Because we both work full-time," says Ms Brown, "we can only take a maximum of six weeks' holiday a year, so it didn't make sense paying for something for the whole year."

They also found it very attractive that the company they bought through took care of everything: "When we looked at buying our own place outright, we were put off by all the hassle with Portugese bureaucracy that we would have had to go through," she saysadmits. But when they bought a fractional ownership property, "everything was taken care of.".

In fact, the biggest problem they faced throughout the whole process was finding a UK bank to open a Euro account to transfer the funds for the purchase.

Now the proud owners of an apartment five minutes' walk from the sea, Amanda is already checking out which other fractionally owned apartments she can swap, so they can go ski-ing.

As far as Amanda and her partner are concerned, fractional ownership is great: "I don't know why everyone doesn't do it," she says.

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