Over the years the overseas property industry has come up with innovative ways of making foreign property more accessible, but at times this has caused confusion.
Buying Property Abroad – Fractional Ownership
Fractional ownership is where a property is owned by a number of individuals or families and they share usage and maintenance costs. This can be informal or formal. Informal may be friends clubbing together to buy a home or several family members who may have inherited a property and then they retain joint ownership. Or it can be more formal, like dealing with a fractional development. In essence, fractional ownership is the shared ownership of a property, usually where the title deed is divided into fractions ranging from a quarter to a twelfth, or more, giving the right to stay in the property for the corresponding fraction of the year.
Whilst an investor can leverage their money by fractional investments, it can be tricky to finance because banks don’t have recourse to repossessing a whole property in case of default.
Property Abroad – Timeshare
Time share has been big in the past where people have paid money to have a given number of weeks usage of a property. Timeshare is a type of property right under which the purchaser of a time share has access to the ‘share’ they own in a property for a specific ‘time’. Timeshares may be on a part-ownership or lease, ‘right to use’ basis. This concept became sullied over time as a result of some of the pushy sales practices that seemed to accompany it.
Peter Esders, a fractional legal specialist, clarifies the differences between these two forms of purchasing succinctly: ‘Timeshare is a form of fractional ownership but fractional ownership is not necessarily timeshare – essentially one is a subset of the other. The new ‘timeshare’ legislation isn’t even called the Timeshare Directive anymore – it is called ‘The timeshare, holiday products, resale and exchange contracts regulations’.
‘Both fractional ownership and timeshare can be limited to a number of years but are often in perpetuity. Both fractional ownership and timeshare can be bought in the name of a company and therefore you can technically be buying the right to use the property rather than the actual ownership, or the ‘property’ can be registered in the individual names of the owners at the Land Registry.’ In essence the boundaries have become more blurred over time.
Investing in Property Abroad. The 3rd Way.
There is also a way of combining the fractional concept with a leaseback arrangement as a form of accessible investment, which has the potential to deliver decent returns over the medium to long term. This gives the advantage of minimum hassle, income generation.
These can be in hotel complexes where a buyer invests in a fraction, or whole unit and then signs a management contract with a hotel group, for a pre-determined period of time, say 10 or 20 years, who manages all the marketing, letting, management and generates a net income for the investor.
Now this may not be for everyone, but it certainly addresses a number of the issues encountered by people wanting the best of both worlds: decent returns with a reasonable entry level price threshold. Given we are living in a world of low investment returns lately, this also represents a serious alternative way to build an investment for later years.
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Peter Esders is an overseas property legal specialist at Judicare Group, who used to work for a timeshare trust company, setting up the structures and legal frameworks. Judicare helps individuals encountering issues with property abroad.
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