Time To Share Some Experience
October 2, 2009 by Perspective Magazine | Timeshare & Fractional ReviewsWith increased consumer interest and more and more exciting products coming on line, 2009 has been the year of the fractional. However, writes Sarah Lee, in developing the perfect product there’s much fractional developers can learn from timeshare.
Many fractional developers would concur that when marketing their product they try to cut any associations with timeshare, believing there to be vast differences between the products in terms of structure, quality, buyer profile, legal requirements and their inherent nature. But for those prepared to accept such linkages there is much fractional developers could learn from up to 40 years of timeshare history.
- Pezula Private Residence Club, Knysna, South Africa
It’s said that hindsight is a wonderful thing and many timeshare professionals with decades of experience would agree that they would have done things differently – despite the fact that the industry that has matured to offer a popular global product.
From length of ownership to size of fraction, structure and target market, industry professionals offer their suggestions for a bright fractional future.
A Small Matter of Size
A major area highlighted as proving challenging for timeshare is the length of ownership, with developers finding that the in-perpetuity model has not been without its difficulties.
Lisa Migani, director of business development at First National Trustee Company (FNTC), says: “Early on in timeshare’s history developers were persuaded to produce a product that would be there forever – in perpetuity, something that consumers could pass on to their children.
“But time has taught us that this doesn’t work. Today, our consumer-driven society doesn’t want something that lasts forever, nor do they want to leave something to their children as children really don’t want to do the same thing as their parents.”
Nick Turner, vice president and head of new business, The Registry Collection, Europe, agrees: “Although a Spanish villa next to a championship golf course may appeal to many people, it’s unlikely that their 20-something children will want to visit it as well. Today young travelers are more likely to want to go backpacking around the world on a gap year.”
“You often find that timeshare properties that have been there for 30 years or more are really starting to show their age and require an unfeasibly large investment to update them,” adds Migani, who also spent ten years as Interval International’s account manager for Italy. “The in-perpetuity model works for sales and marketing people as they believe it adds value on the sales decks and can help them shift large volumes, but it can cause problems for the end user in the long run.”
According to information presented by Ragatz Associates at this year’s Fractional Summit, the most popular size of a fractional share is 1/6 to 1/4, and the average price per is US$162,000 or US$18,600 a week – suggesting that the highend, longer-term products have been the industry’s leading light.
But many professionals are now pointing to the fact that there is a burgeoning middle market that fractional developers would benefit from aiming their product toward.
- Amendoeira Golf Resort, Algarve, Portugal
“Today’s consumer wants high perceived value and low perceived entry-level costs, so it’s important that developers don’t only focus on high-income groups,” says Turner. “They need to strike a balance between the facilities and additional services they offer, such as a golf club, spa and global exchange partnership by backing this up with value. It is a fact that in today’s world debt is high and fractionals allow people to buy a second home without re-mortgaging. Fractionals that will appeal to consumers will offer a low entry level, low risk and low on-going costs.”
David Gilbert, Interval International’s executive vice president of resort sales and marketing for the Americas, explains that affordability is becoming key to fraction size: “A lot of developers are going for smaller increment sales – marketing eighth, 10th and 12th fractions to make their product more affordable.”
Migani however, believes fraction size could yet be transformed further: “Timeshare was built on the principle of a week’s ownership and fractional developers would do well to offer a shorter, twoweek, low entry level, mid-market product. They could really see some success in offering a midpriced property to families looking for somewhere to take their children each year.
“Though there are some people who can travel for up to three months of the year, this is quite a niche group – the mainstream will only have two weeks a year for their main holiday so fraction sizes need to be better tailored to reflect this.”
For Sale
Something that timeshare professionals put high on the list of priorities for fractional developers is offering owners an exit route – ensuring the property really does have a resale value.
While Gilbert suggests a fractional should be purchased as a holiday product and not with investment in mind; both Turner and Migani recommend developing products that will last for 15-20 years before being sold, with each owner gaining a share of the proceeds from the sale.
“From a north European perspective, it’s important for consumers to see a fractional as an alternative to a second home so they need to feel like they own it but that they can also exit the investment,” says Turner. “One of the strongest consumer pulls is the ability for the asset to be disposed of for them to receive a return on their investment and a share of the capital growth.
“With the second-home market floundering in many countries, consumer trends point to them wanting the
alternative to ownership that fractionals give them, but people can’t think beyond 25 years these days – so unlike timeshare, there must be an exit route.”
Migani, whose company offers developers a free consultation service, adds that “this is something sorely lacking in timeshare – there has not really been a successful resales program. Successfully selling a fractional will be largely dependent on where it is, how much it costs and how the local property market is likely to grow,” she says.
“Another view strongly held by fractional developers and some consultants is that their product, unlike timeshare, is based on a deeded interest while timeshare is not a real right,” Migani continues. “But timeshare has often been sold with a title deed in the U.S. and several European countries, for example Italy and Scandinavia, and many ran into difficulties due to unpaid maintenance fees.
“Critical to the success of a deeded development is having an efficient means of collecting annual maintenance fees. Consumers who own a title and don’t pay their dues could jeopardize the whole project, and taking them to court to retrieve the unpaid fees is a process that may take years. To avoid this situation a more flexible club structure could see owners’ struck off the membership if fees went unpaid.”
Adjusting the Focus
Gilbert, who has 22 years industry experience, highlights the fact that some timeshare developers have created unstable customer bases by stretching to make sales. “Many of them have sold biennial and triennial memberships or have taken smaller payments to stretch things for cash-strapped consumers,” he says. “For the long term stability of a project it is far better to have the right customer for the product than to stretch to make a sale.”
Gilbert also highlighted a problem that has been prevalent in the U.S. timeshare market and recommends fractional developers focus on the sale of their main product.
- yooPhuket, Phuket, Thailand
“Over the years, developers kept building better and better products without worrying about selling them,
as they were making more money on the consumer credit agreements entered into by buyers than the product itself,” Gilbert says. “As the economic crisis has deepened, consumer credit has become difficult to obtain, and we’re now seeing timeshare developers with a renewed focus to ensure their products are profitable on sale.”
Timeshare developers are now less reliant onincome from ancillary products, instead viewing them as a bonus – a characteristic Gilbert advises fractional developers heed.
The overriding sense from professionals is that the fractional market is likely to go from strength to strength – and if developers take note of timeshare’s at-times rocky path, they will be well armed to make the fractional industry well respected and profitable.
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