Experts set the scene for the vacation ownership market in 2009 & beyond

Annual Fractional Ownership Conference 2009 gives pointers to the future face of fractional ownership

The 3rd Annual Fractional Ownership Conference has just been held in Cape Town, attended by over 130 key delegates from the vacation ownership sectors. Dirk Wilson, co-founder of fractionalownership.co.za and organiser of the conference, said he was pleased to see the optimism shown by the major payers “who are firmly focused on the light at the end of the tunnel, with an upturn in the property market foreseen for the second quarter of 2009”. A major component of the conference was the introduction of new end-user fractional ownership finance together with global exchange platforms that will undoubtedly boost the market in South Africa by providing something previously lacking.

Says Wilson: “Jack Trevena of Fractional Finance reported that they are on the cusp of launching end-user fractional finance, but only for specific developments which meet very strict criteria. This will obviously give the assurance of long-term sustainable security and top quality to both lender and consumer.”

Troy Bingham of Platinum Exchange Australia gave feedback to delegates on the progress of the global fractional ownership market. He indicated that he was impressed at the sophistication of the South African market, and how close it is in terms of development to the US market (the leading fractional ownership market in the world at 12 years old). Says Wilson: “The fractional ownership market in South Africa is only 4 years old, but over this time the pioneers here have used a lot of initiative to really shape up the industry in terms of marketing approach, quality of resorts coming on-line, industry regulation and consumer protection.

The markets in Dubai and Australasia as well as parts of Asia are looking at South Africa and at what we are doing right here, and using the infrastructure that is currently in the market here to their benefit in terms of the projects that they are rolling out. That is also quite encouraging to the market here.”

Interestingly, two economists at the conference gave differing views on the outlook for the property market in general. John Loos, property strategist at First National Bank, said now was “probably as good as it gets” as an optimal time to buy property before prices begin to recover. However, Erwin Rode of property research company Rode and Associates forecast a long period of house price increases lagging behind inflation, that could last as long as 5 years.

Says Wilson: “While the difference in outlook of Rode and Loos were very interesting, should the predictions of Loos prevail, his statements will affirm my current outlook that the fractional ownership market will regain itself going into the second quarter of 2009, as fractional ownership purchases are underpinned by property values and the performance of these properties in the general market, presuming interest rates stabilize (if not already falling) by the second quarter of 2009, fractional sales volumes will naturally get back on track and continue the upward trend experienced over 2007 and early 2008. In essence, the longer purchasers wait to buy into residences currently available in the market, the cost of shares in the next residence are likely to be higher, as increased building costs determine the final price per share entering the market in the future. 

In the interim, there are some major international companies entering the market with some truly magnificent products that will attract the global fractional consumers as well as the South African market.”

An example was outlined by Joop Demes of Golding Hotel Investment Consultants, who said they were in talks for development of a huge mixed-use resort in KZN which includes two theme parks and 20 hotels and one of the biggest shopping centres in the country. This development will feature a major vacation ownership component that will undoubtedly compete on the global platform.

Wilson said that top-end private residence clubs (PRCs) such as IFA Fairmont Zimbali and the Zorgvliet group are on track for roll- out over 2008 and 2009, but outlined how he sees the market developing: “If you divide the South African market into three sub-sectors, classic fractions (typically priced between R200,000 to R400,000) are set to grow in market share. Also, there will be an emergence of more top-end PRCs, but there will also be a larger entry-level market at under R150,000 a fraction. Growth in each of these sub-sectors will create a spectrum of products that will suit all pockets and levels of lifestyle usages – it is truly an exciting time ahead.”

Wilson says the two major aspects set to shape and boost the fractional ownership market in South Africa over the next few years are fractional ownership finance, and the emergence of top-class global exchange platforms. “The products on offer are becoming even more attractive, and coupled with the recovery in the property market, I am very optimistic about the not so distant future – it’s apparent that the major industry players all share this vision too!”

He reported that the number of fractional ownership companies active and selling had fallen from 64 companies 6 months ago to 34 companies today, and explained why. “The fractional market is now correcting itself. There may have been something of a ‘gold rush’ to the market, whereby many developers and individuals had unrealistic visions of creating increased margin on their residences by offering the asset on a fractional scheme, or seeing fractional as an innovative way to sell off a residence not selling on a whole- ownership basis.

These promoters and sellers have been faced with the harsh reality that the post-sale and sustainability of the secondary market only caters for serious players with a minimum commitment of 20 years or more. These are the real players that will drive this market forward.”

For more information please contact Dirk Wilson on 021 556 5032 or dirk@fractionalownership.co.za; see www.fractionalownership.co.za

ENDS