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Fractional ownership: How to buy a piece of luxury

Thursday January 23 2020

Amber Villa

One of the private luxury villas in Amber Villa, Diani. PHOTO | COURTESY  

DELFHIN MUGO
By DELFHIN MUGO
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Tom Mboya’s first encounter with the concept of fractional ownership was in the year 2000 while working in South Africa.

The father of four, an ICT expert in Nairobi, says he used to wonder how his colleagues could afford to go on holiday in some exquisite destinations in South Africa and neighbouring countries such as Namibia and Mozambique.

And then the secret came out, eventually: fractional ownership.

He says: “What I realised is that they got space in a chain resort with several other facilities across Johannesburg, Durban, Cape Town, Pretoria, Namibia and Mozambique. By purchasing shares in the form of one-week or two-week fractions, they were able to travel to some of these cities and countries and stay in a very good four to five-star hotel without paying for accommodation.”

More than a decade later in 2013 while on a holiday trip to Dubai, Mr Mboya would once again be introduced to the concept.

“We had just landed and were at the airport when some people from the ministry of tourism there invited us for a 30-minutes talk. They promised that those who would attend would be given a free desert safari or a tour of Burj Khalifa (world’s tallest building) or a helicopter flight across Dubai. The offer was very enticing,” he says.

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The talk, Mr Mboya explains, turned out to be about fractional ownership, with the hosts urging those gathered to buy fractional properties in established hotels where they could holiday each year.

“We liked the idea but we were not willing to spend money at the time, therefore my wife and I bailed out but took the desert safari anyway,” he says with a chuckle.

Fractional ownership, explains Mr Peter Kamau, a sales executive with Aberdare Spa and Safari Lodge, one of the fractional developments in Naivasha, is a method in which unrelated parties come together to own a high value asset and share in the benefits and risks. This, in essence, splits the cost, therefore you do not have to pay as much, and you have full access to the property for a set period each year, to travel and live comfortably with your friends and family.

In some instances, the buyer has access not only to his or her own property, but a pool of homes and resorts around the country and even across the world. Your “fraction” gives you full ownership rights, complete with full legal title, for the lease period of the property, usually 99 years. This type of home or property ownership model was pioneered by American Richard Santulli in the late '80s. It begun in major ski states like Colorado before it became popular in golf-oriented and beach communities.

While Mr Santuli started it as a concept for business jets which could be bought together by a small group and shared or used by the buyers on a rotational basis, the idea quickly grew to other sectors, including resort properties as an alternative to the timeshare model. 

The exceptionally high real estate costs and consequent inability for most to afford a vacation home near ski resorts is said to be the major reason behind fractionals, a factor that made these locations the ideal fractional ownership locales.

For Mr Mboya, who takes a holiday twice every year, it seemed as if the concept was chasing after him everywhere he went. A few years after his Dubai trip, he says, on an occasional visit to the Junction Mall on Ngong Road, he was once again approached by a group of sales representative with the same idea. 

“It wasn’t the first time that I had been approached by a local company. I gave in this time and decided to attend the presentation,” he says. 

This time, he made a holiday investment in a two-bedroom villa in Mwembe Resort, Malindi in 2018. Mwembe Resort is developed by Baobab Development Group Ltd (BDG), a real estate developer credited with pioneering this concept in Kenyan in 2010. The group also owns other properties in Malindi and Diani.

Asked what really sold him buy the concept, Mr Mboya says: “The idea of having many options to visit places at a much subsidised rate. And the fact that you are getting it for 99 years. I figured that in less than five years, I will have recouped my investment, so everything after that will be a benefit to me and my family, with the option of wiling it to my children.”

Not willing to make money by renting out his ‘fraction’, Mr Mboya seems to follow the economic principle that says ‘money saved is money earned.’

“In Diani I used to pay Sh24,000 to book my family in for a night, so if we stayed for five days, we would end up spending Sh120,000 on accommodation and considering that we holiday at least twice a year, we are looking at close to Sh300,000 a year on holiday alone.” 

Owning a holiday home has now taken this cost away. 

In Kenya, despite being a home ownership option for about a decade now, especially for those looking to own a second home, fractional ownership is still a relatively foreign concept for most people.

Ms Zamzam Hussein, the operations manager at BDG, admits that even after 10 years in the market, her company has barely scratched the surface.

“Not many understand this concept, I think that is where the challenge is. I would estimate that in the time we have been in this business, we have only managed to reach just three per cent of the population with the information. And most of these people are in the urban areas,” she says.

While some people are going into fractional ownership as a means of making money in real estate, Ms Hussein says, a large number of them are going into it as a lifestyle choice, to acquire a holiday home where they can retreat after months of work. 

Writing in the Forever Young news magazine, a leading publication in Canada where fractional ownership is a big sector, an owner of a fractional property perhaps lends credence to Ms Hussein’s assertions and clearly demonstrates what this concept is about. 

The holiday maker writes: “I’m sitting on the side deck of our comfortable, modern two-bedroom, Muskoka-style cottage ready to attack a mystery novel, sipping a glass of chardonnay. My only worry on this day is whether I’ve applied a suitable amount of sun block.”

The author has been an owner of a cottage at Point Stanton for six years and claims to look forward to this moment every year.

“People don’t even realise that holiday is a necessity,” Ms Hussein says. “What we are selling here is a lifestyle. Our goal is to help people go on holiday and do so affordably.”

She adds that the company is currently serving more than 1,500 families who get to enjoy their holiday in any of the villas in the four properties.

“We are also looking to expand to other places across the country and in the international market so that people who buy fractions with us have a wide variety of holiday destinations to sample,” she says. 

Life couches concur that holidays are a necessary tool in achieving a good work-life balance besides helping the holiday maker to recharge their batteries. For this reason, apart from making luxury holiday homes more affordable and accessible to the middle class, buying a fraction is seen as an effective way of helping people go on scheduled holidays without fail. For instance, Mr Mboya says that having a fraction has disciplined him to take his holidays when they fall due.

“Whatever you do, you have to pay the Sh15,000 annual maintenance fee, that forces you to make time and go on holiday,” he says. 

Ms Hussein explained to DN2 how fractional ownership works:

“When you buy a fractional property, your purchase price relates to the number of days or shares. Most fractional properties divide the shares into six to eight-week blocks. We have, for instance, divided our fractions into weeks.”

A one-week fraction in one of BDG’s property, sold by the company’s sales subsidiary Q&B Investments, will take you back Sh850,000 for a two-bedroom villa. The home comes with, among other amenities, a swimming pool, a gym, Jacuzzi, a tennis court and access to a restaurant.

“It is an investment in the sense that it is a one-off purchase. Apart from the annual maintenance fee, every single year regardless of inflation, you will have a place to go for holiday with no extra cost,” says Ms Hussein. 

Located in the slopes of Aberdare ranges and overlooking Mt. Kenya, Aberdare Spa and Safari Lodge offer discerning buyers a chance to own a piece of the exquisite and modern hotel, according to a statement on the hotel’s website. It opened its doors in 2016.

According to Mr Kamau, the lodge’s sales executive, the hotel is practising fractional ownership a bit differently from others in the country, in the sense that the focus is on renting out and managing the homes on behalf of buyers.

Here, a single home is divided into 20 equal shares. One share of a four-bedroom villa will take you back Sh2.5 million, with an expected return on investment (ROI) of Sh41,000 every month. On the side, buyers have a maximum of 10 free days to use their villas every year.

Money aside, Mr Kamau is of the opinion that ROI can’t be defined by money alone.

“Fractional ownership offers the benefits of a luxury resort with appreciation potential without the costs associated with maintaining a second home. They offer more space, amenities and more access per year than a timeshare, and allow you to bequeath ownership to your children,” he notes.

The most common misconception about fractional ownership is that it is timeshare by another name, however, nothing could be further from the truth.

So, what’s the difference?

According to insiders, a timeshare is a right to the use of a property. With timeshare, you don’t own a tangible asset, but you are buying the right to use one or more holiday properties at certain times. 

With fractional ownership, you are buying a percentage of actual bricks and mortar. This fraction then entitles you to use the property for a certain number of weeks a year, and unlike timeshare, you can transfer or will ownership or sell your fraction on.

As far as usage of the property, there are different schemes – fixed periods, floating dates and blends of both.

While buying a traditional cottage as an occasional getaway may be a good thing, it is likely to place maintenance chores that a holidaymaker may not be willing to take care of during the short stay. On the flip side, a fractional property provides a break with no maintenance as the administering company takes care of this.​

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