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Acquire a holiday home through shared ownership
Date: 26/05/2010Article source: Business Daily
The holiday season is back with us again and most people are likely to take a holiday with their families and loved ones.
Chances are your holiday destination remains the same year in and year out.
How do you finance your holiday?
Some people save for the annual holiday all year long.
In fact some hotels in Mombasa allow guests to deposit as little as Sh2,000 each month to build up a reserve for the December holidays.
Most younger ones with no families to take care of, just splash out their Christmas bonuses and live large in the month of December.
After all, they have only one life to live and the time to enjoy it is now (before old age and family responsibilities check in).
Come January the driest and longest month of the year and they wish they had spent their bonus better because good times do not last forever.
But it is possible to own a holiday home through fractional ownership of property.
Imagine owning a luxury holiday home in the Maasai Mara or a luxurious beach front villa down at the Coast, complete with game drives, scuba diving, yoga, massages, seven course meals and any other luxurious thing that comes to mind.
Most people would like to own a vacation home but are limited by lack of capital and furthermore it would make little economic sense, as the premises shall not be in use all year round.
However in a common trend in the West, more people are able to afford vacation homes thanks to the concept of fractional ownership.
Fractional ownership is a deeded ownership of an asset (including yatches, aircraft and homes) whereby an individual is granted a percentage share in the asset by purchasing a partial interest therein.
As a fractional owner one has the right to use the asset on demand for a predetermined number of hours per year.
The fractional provider (initial owner) manages the home and provides maintenance and other services including employing chefs, yogi trainers, drivers and gardeners to run the property.
The fractional owner with the most shares gets more access to the house.
However even with as little as two per cent ownership, you can still enjoy the benefits of staying in a luxurious cottage for a period of up to one week each year.
The advantage of this concept is that you can always nominate a third party to take up your allocated time for the year.
This is especially ideal where you want to offer a loved one a vacation as a gift.
The other attractive feature is that your capital contribution (in form of percentage owned) remains an asset and can be sold and transferred to third parties.
The fractional provider (initial owner) forms a company (which usually owns the property) and offers shares to would be fractional owners.
The fractional owners own the company as well as the property jointly pro rata their shareholding and a minimal service charge is payable to the management company.
The relationship between the owners is regulated by the Articles of Association of the management company as well as the Companies Act.
Fractional owners
Where there are fewer fractional owners, then instead of forming a management company to own the property, ownership is vested jointly to the fractional owners under common tenancy where each is allocated a percentage of ownership pro rata his contribution.
The title deed is therefore jointly held.
A common advantage of fractional ownership is that risk is shared and therefore minimised.
Risk could include damage to the property, depreciation and destruction of the property.
Rather than bear the entire risk alone, fractional ownership enables the owners share the risk pro rata their shareholding.
A major disadvantage of fractional ownership is the loss of privacy due to the sharing concept and the fact that accessibility to the home is limited to your share.
Another common disadvantage is that owners are exposed to risk caused by the negligence of a co-owner.
For example if one party burns down the property, then all would loose their stake in the property.
However on the whole, it has made luxurious items more accessible to people.
It is a good investment especially if the co-owners are well known to each other.
Readers Comments
Rentia Pieterse - 29/03/2011
If I have a holiday home which I would like to change into a fractional/syndicated ownership, do you have someone you can recommend to help with the legal aspects?
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