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Market Watch - Page 8:

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Timeshare, High End Fractional Ownership Matures.

 

 

 

What do esteemed luxury brands such as Four Seasons, Ritz Carlton, Hyatt and St. Regis all have in common? All are players in the global surge in fractional ownership, and it's a trend that is growing in the worldwide property market.

Upscale brands are increasingly becoming commodities and their quest to gain further market penetration they are seeking out niche products to grow the brand and the core operating business.

From a historical perspective, fractional ownership is an offshoot of the timeshare industry, coupling its ambition to attract a lucrative higher-end targeted customer base together with more a traditional real estate investment vehicle.

Typically fraction * sold on usage rights for owners from two weeks per year (1/25*) up to 13 weeks (1/4*). Ownership structures vary but in many cases, as legally allowed, buyers are able to secure a deed and an undivided interest in the property similar to a strata title. In the case of a 1/4th fraction this would be a 25% ownership.

When comparing timeshare to fractional ownership it's more of a real estate investment than a lifestyle purchase. Unlike timeshare which is more focused on the mass market, fractions are aimed at rich individuals and prices for the shares are often in the range of 3.32 million to 33.2 million baht (US$ 100,000 to US $ 1,000,000) or more.

Upper tier brands are required to service both the owner's personalised service needs and to drive sales based on brand recognition and appeal. The more recognised the brand the greater the premium that can be charged, with pricing differentials often in the range of 30 50 % above non-branded projects.

The ability for owners to schedule usage time is of primary importance to the buyers. In general terms, schemes range from rotating calendars throughout the year to a set calendar or fixed weeks and in many instances a lottery or rotating calendar plan wherein owners can register interest in multiple periods which may fit their individual schedules.

Another common system once owners have all registered their interest for a year in

Let's say you have a wonderful view and the

 

 

certain time periods is to allow booking on a space available basis, which is more conducive to short term booking and changes in holiday plans.

For developers evaluating the potential benefits of a fractional property this is often coupled with a mixed-use project such as a hotel so that expanded facilities such as spas, food and beverage and leisure facilities are able to be provided but the cost is not underwritten from a fairly limited customer base. The advantage to the hotel is the ability to capture more in house revenue and in most cases higher customer spending.

Bottom line development profit for fractional ownership varies, but as a general rule projects get a bottom line profit in the area of 35% and upwards. Marketing costs exceed normal residential developments, which range from 5 - 10% of turnover yet are less than timeshare and most often range from 20 - 25%.

The key attraction is the ability to sell luxury property at a lower price than stand alone units and from the front-end cash flow and provide a faster take up rate than traditional property offerings.

A spin-off of fractional owners is private residence clubs and destination clubs. In many cases these are city center properties in high demand locations such as New York City or London that offer both rational cost alternative to staying in upscale hotels along with the recognised exclusivity of a private club.

Fractional offerings and these types of clubs also focus on exchange opportunities within their other branded properties and offer owners the flexibility to stay in other desirable locations while utilizing their existing rights. Third party exchange programs such as RCI's Registry Collection are now focusing on the upper market as well and utilizing its network to offer owners similar offerings.

In Phuket the Banyan Tree has already launched its residence club (www.banyantreeresidsnces.com)which provides property ownership and exchange opportunities at its other branded properties, which are growing around the world. It is very likely that more international hotel brands will bring fractional products to market in the next few years. The trend is one worth keeping an eye on.

 

   

Bill Bamett is Managing Director of C9 Hotelworks a Phuket hotel and residential consulting firm With more 20 years experience in the region, he has played an active role in some of the island biggest develovments.

       
       
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Is Phuket Ready For Fractional Ownership?

 

Koh Samui's Emerging Luxury Market Part 2

 

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Archived Articles: 2007 - 2008

 

Krabi - On The Edge Of A Boom

 

US Financial Crisis - Living The Sub-Prime Life

 

Rental Income - Investment Rent And Raves

 

Aesthetics - Out With The New, In With The Old

 

Hotel Branded Realestate, Battle Of The Brands

 

Local Communities - Cables Gone Wild

 

Rental Property - Plus & Minus, Buying A Hotel Unit

 

Aesthetics - Bold Designs Keep Boredom At Bay

 

Agent Commission, The Low Down About Paying Up

 

US Financial Crisis - Clouds The Property Horizon

 

Phuket - The Next Big Property Trend 2007

 

Vietnam, Too Fast Too Soon

 

Pre-plan your purchase, and prevent future pain

 

How we should protect the property cash cow

 

Re-Inventing Patong

 

Budget Hotel Brands Shake Up The Scene

 

Property Developers - Number Crunching Pays Off

 

Bali, (property) Supply Surges Ahead

 

Aesthetics - Designing For Success

 

Phuket, Battle to preserve the beaches

 

Low Season - Cyclical Cynics

 

Phuket Luxury Villa Market Update Feb 2009

 

Khao Lak, Back To The Future

   
 

 

   
 
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