Kerry Gold, The Globe & Mail, June 19, 2009
In this economic climate, developers must sweeten the pot if they're going to draw new customers.
Fractional ownership of a recreational property is a sweetener that's growing in popularity.
It's a type of ownership that can be used for the purchase of any property - real estate, boats and racehorses. In the case of real estate, the owner has clear title over a portion of the property. For the consumer, the idea of sharing property ownership makes sense, especially if the property in question is a luxurious recreational one that would be impossible to purchase solo.
Fractional ownership is commonly confused with the time share, which is not ownership of real estate but the purchase of blocks of time to use a property.
"With fractional, when property appreciates in value, so does the owner's equity," says Murray Rosengren, who is site development manager for Mayne Island Resort, a fractional property. "You can use it for personal use or rent it out, leave it to an heir or sell when deemed necessary ... it's really not different than any other piece of real estate."
Mayne Island Resort is a 100-year-old hotel surrounded by 18 cottages. The cottages, which opened in May, were partly sold as presales over the past 1½ years. Purchasers acquire one-eighth of a roughly 700-square-foot cottage, with prices starting at $59,900 and going up to about $85,000. Monthly maintenance fees are less than $100 and cover utilities, security, insurance, repairs, replaced furniture and whatever other costs may arise. The cottages are fully furnished and include features such as high definition TV, king size bed and stainless steel appliances. Amenities on the property include a spa, steam room, conference room, concierge service at the hotel and whale-watching tours.
It's a more complicated arrangement than a standard one, with a 99-year rotation schedule laid out in the disclosure statement. Every 49 days, an owner get a seven-day stay at the property.
"There is no confusion with who gets what occupancy time," Mr. Rosengren says. "It changes from year to year. Nobody gets July 1 each year, for example."
Real estate analyst Rudy Nielsen is one of the largest private owner of recreational property in British Columbia, and he has considered fractional ownership.
"In the right development and close to a major market, you can get a good return," he says.
He almost purchased one-quarter of a property to share with his two sons and a friend, but pulled out when the developer changed the conditions to one-eighth ownership to make a better profit.
"I cancelled because I didn't want anybody else sharing the premises with me. Right now, I share a log home with my young son, and if my wine rack is missing three bottles of wine, I know who did it," Mr. Nielsen says.
"I look at pricing, the development project itself, what it is they offer, and if it's near an urban area.
"Make sure your monthly fees don't get beyond the limit, and you have good management people that look after the place so that it's not trashed."
The Residences at Fairmont Ridge is located in the Kootenays, a three-hour drive from Calgary. The townhouse development is part of the overall plan for Fairmont Hot Springs resort.
The scenic lake district is a major draw for vacationers Albertans who flock from Calgary and Edmonton, and even Saskatchewan and Manitoba. The semi-arid climate of the Columbia Valley allows for an extended golf season. In winter months, there is skiing on the nearby mountains.
The marketing strategy is to attract more buyers to an area that is more than holding its value. Overall sales in the Kootenay region dropped 56 per cent in the past year, but the average price of a condo rose 25.7 per cent, according to a Landcor report. With fractional ownership, a development such as the Residences may draw not only the usual retirees, but the family market in the 35 to 45 age range, says Residences development and marketing consultant David Ford.
"Younger people were choked out of market - this is providing them with what they need and a price point that is affordable."
The Residences opens next month and is still selling its 67 luxury townhouse units, which are large at up to 2,400 square feet. The units can be bought either whole or as one-eighth or one-quarter. Whole ownership of a unit is in the $700,000 range, and includes a host of amenities and panoramic views of the valley. One-eighth ownership starts at $74,000 and one-quarter at $140,000.
Owners receive a full month in the summer and then rotate usage throughout the remaining eight months of the year to ensure use during ski season.
"A lot of folks are very obviously scrutinizing that notion of disposable income and realizing, 'Wait, does it make sense for me to go buy either a $400,000 or $2-million home when I may only use it for two or three months of the actual year?' " Mr. Ford says.