Fractional ownership trims vacation costs
Shared ownership of vacation properties got a bad rap years ago with time-shares. High-pressure sales tactics and a general lack of regulation turned off potential buyers. But the concept is making a comeback and new models are being developed.
According to Jon Zwickel, CEO of the Vancouver-based Canadian Resort Development Association, studies show vacation homes are typically used 36 days a year by their owners. So for those who don’t want the cost of owning a property that may sit empty 11 months of the year, shared ownership makes sense.
“Why buy a whole pizza if you can really eat only one or two slices?” Zwickel asks. His organization represents developers of all types of shared-ownership properties, including time-shares and fractionals. One of the main differences, he explains, is the length of time being purchased. Time-shares have traditionally been a week of use, whereas fractionals range from four to 26 weeks per year. Fractionals usually come with a deed of ownership.
While there are no specific statistics in Canada on time-shares or fractionals, Zwickel says shared ownership is seeing a resurgence.
One challenge in Canada, however, is that the recession made it hard for Canadian developers to compete with U.S. prices, which plummeted after the housing crisis in 2008.
And, though sales are picking up, the effect of that is still being felt.
One often-cited downside of shared ownership is that owners can have a hard time reselling.
It’s an issue Dianne Hounsome, developer-manager of The Cottages at Port Stanton, Ont., has never shied away from. Her family has been in Muskoka since Captain Thomas Stanton settled on Sparrow Lake in 1875. She is the fifth generation of the family to be in the area’s tourism business.
“Value-wise, people won’t get the full amount of what they paid,” she says. “But when we went into it ... we said, ‘This is a lifestyle product that you’re buying, something you are enjoying as you go along. Don’t think you’re going to get all your money back at the end.’”
Hounsome started The Cottages, which are connected to the family’s Bayview Wildwood Resort, in 2002. There are 18 fractional-ownership cottages in the first development and four in the second. Owners have use of their cottage for five weeks a year — one week in each season and one in off-season. They can eat meals and use the amenities at Bayview Wildwood. This is typical of most fractional concepts.
When the cottages were developed, listed prices varied according to style of cottage and which summer week was reserved. For a three-bedroom detached and semi-detached, prices ranged from $49,000 to $95,000. Maintenance fees run about $3,000 a year.
Someone who paid $75,000 initially might expect to sell for about $50,000, says Hounsome, adding that owners have been able to find buyers for resales at her development. Other larger and more luxurious fractionals will see different results, of course.
Still, Inde Sumal, vice-president of Residential Mortgages, British Columbia at Royal Bank, says shared ownership provides a cost-effective entry into the recreational property market and is especially good for people who want limited use because they don’t have to pay a full year of taxes and upkeep.
He says the rental-pool-restricted-use model, where owners put part of their time into a rental pool and share in the proceeds, is gaining in popularity and has become the easiest type of shared-ownership property to resell.
It’s important for people to use lawyers and real estate agents experienced in the recreational market when buying a sharedownership property, he says — and to be realistic about how much time they plan to use it.