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There’s distortion in the market – little mortgage money around, yet a lot of cash-rich individuals keen to put it where it feels safe. Perhaps the fractional property market is what could suit both UK estate agents and their clients in this market.
Fractional ownership is not a new idea to the world, but it is to the UK. You could say it’s about owning a ‘share’ of a property, but that term would be raising old ghosts of timeshare… The idea of fractional is similar, but the principle fundamentally different. Buying ‘fractional’ property is about buying and owning a property albeit a right to a portion of it, but it is an interest you can sell on and which can enjoy capital growth that comes back to you the owner.
We’re not talking about houses on Clapham Common here; the mainstream fractional property market is abroad in luxurious millionaire playgrounds, but by buying a fraction of the property, it costs a fraction of the price and opens up a whole new world to a whole new market. After all, isn’t everybody a fractional millionaire?
The majority of the market at the moment consists of developers who may be selling their latest development in fractions direct to the public via their own team of brokers, or through specialist sales agents or consultants acting on behalf of developers. It’s seen as a specialist sales area, but really it isn’t. As long as the developer has the right attitude to information, point of sale material, education and legal back-up, any agent can have the most exotic propositions beckoning to passers-by from his window – at a truly affordable price.
FRACTIONAL SUMMIT 2010
The recent Fractional Summit 2010 in London drew delegates from all over the world. ‘Meet The Agents’ was a conference panel which considered how the fractional world should engage with agents as routes to market. The concluding discussion of the event showed that there is a need for a unified approach to selling fractional property and so pace of development being held back. But that doesn’t mean there aren’t opportunities for the agent who can connect with the right developer.
Event organiser Piers Brown of Fractional Life, a portal for the global fractional property market, has a vision for agents adopting fractional selling, but only with the right approach. “We need more pro-activity within the agent network for them to truly become knowledgeable about the fractional market.
“Commission-based remuneration is never as appealing as a whole ownership sale, but agents trying to sell whole ownership of overseas property in the current market need to ask themselves if they really believe the market will ever Fractional Proposition Grant Leonard delegates himself to go to the Fractional Summit 2010 and asks how UK agents can get involved. recover to the frenzied sales successes achieved up to 24 months ago. I don’t believe it ever will.” So Piers sees a need for a change of attitude – a more intelligent, time-invested approach, rather than a quick-buck opportunity.
A recurring theme from the panel, which included Richard Edgar, spokesman for the NAEA who sits on the NAEA International Committee, was a worry that fractional would be treated as a short diversion from selling whole properties in a strangled market and that the attitude could cause reputation damage to fractional. “Many have come in to fractional because a ‘whole sale’ is hard – they got in and they’ll get out of it!” He estimates there are around 1000 UK agents selling international and currently maybe 3-400 specialists. In terms of the need for education of agents, he points out that as such, it’s a low priority for the NAEA.
Indeed, ‘education education education’ was the Blairite mantra heard around the conference, underlining the specialist aspects and understanding needed to sell fractional effectively. Put simply, you have to know what you’re doing but once you do, it’s a lucrative and unlimited area of growth for a forward-thinking agent, taking his business way beyond his immediate geographical patch and the local, or national, economics that influence the market.
LIFESTYLE, INVESTMENT OR BOTH?
Another forcefully mooted point at the Conference was whether fractional should be sold as lifestyle or investment or both. Resale of the fraction shouldn’t be factored in, some were saying, others had opposite views. The room was divided. Jerry Cobb CEO of the Fractional Ownership Consultancy didn’t like to constrain the appeal of fractional. “This is what makes the product different to timeshare,” he said. “The fewer restrictions, the better. It adds complications but gives a way out too,” he said. Talking about fractional as an investment does complicate the sales pitch, but it also can make it attractive, just like when one buys a home in the UK, capital appreciation is a very important driver for most people.
Fractional property sales needn’t just be about selling five-star resorts in Phuket. Simon Scott-Nelson, a panel member at the conference is an agent into selling fractional in the UK. “I opened the Winkworth office in Exeter to specialise in fine Country Homes and waterfront properties and prestige developments in Devon and Cornwall. We are widely regarded as the only fractional ownership specialists for the South West.” For Simon, the key is to identify the most prestigious properties on a development to fractionalize. No matter how luxurious the spec, how perfect the location, a £2m price tag for a whole sale of a holiday home, is much less realistic to move than a fifth fraction for £400,000.
Piers Brown sums up the fractional market and shares his vision for the UK estate agent with ambition and appetite for fractional. “Consumer buyer motivations have turned on their head. It’s a new market paradigm coupled with uncertainty, increased insecurity and finance restrictions, and many of the old rules don’t apply. As a result, I believe mixed use resorts incorporating both fractional and whole ownership will become the norm over the next few years thus appealing to a much broader buyer demographic. The overseas property market needs to get energised by the people within it. Those proactive agents that successfully immerse themselves in the fractional sales market will become a very important commodity in the years to come.”
This September’s Fractional Life Expo is the only exhibition dedicated to the fractional ownership concept
The inaugural B2B Fractional Summit USA conference takes place 31 Aug-1 Sept 2010.
Agents need to find developers with an interest in building lasting relationships and agency networks. Those developers will make sure the agent is given all the support and tools they need to sell confidently.
One such developer who is actively seeking UK agents to sell its latest project Ponta do Pargo in Madeira is Canary Wharf-based Morgan Forbes (UK) Ltd. The development is a stunning five-star 68-room hotel complex next to a Sir Nick Faldo-designed golf course on its own cliff-top peninsula. You can own a fraction of a suite there for just under £18,000 – yours forever for the price of four family holidays. There are thirteen fractional ‘units’ to a suite. The agent comes on board with a comprehensive information pack and a personal meeting with the Marketing Manager of Morgan Forbes, John Ward. “An agent will have full support – legal, administration, contract,” says John. “Once someone pays their entry fee, they then have several affordable staged payments. The biggest thing we do for the agent is we pay the full eight per cent commission on the whole deal – it’s we who chase the balance of the money, not the agent.”
Morgan Forbes puts a lot into its marketing and support. “We’re honoured to be shortlisted for an AIPP award to be announced at A Place In The Sun show. We have to show our customer service levels, show what we transparency process we haveto go through. Our customers are picked at random and interviewed by the judging panel. We want to show agents that we are being as supportive as we can be; marketing spend is very important – we support our project by getting the message out there. We do large email campaigns monthly, using major labels’ databases, for example, Rightmove, Movechannel, Homes Overseas, Fractional Life etc, and we work with the national press. We also run press trips, take press and agents to the development.”
As an investment, John Ward says, “We offer resale opportunities to the investor and we have an expected yield of 12.4 per cent based around an occupancy level of 66.5 per cent. These projections are based, on 2009 performance in a recession year.
www.morganforbes.com 020 7 515 2444