Fractional developments gaining popularity among SA’s super rich

THERE is growing demand from SA’s super rich, including a substantial number of blacks, for luxury “fractional” developments, a relatively new concept in the country.

According to the Registry Collection, a high-end luxury travel-exchange programme which enables members to travel internationally and stay in luxury fractional developments, about a third of the buyers into these schemes are SA’s black elite.

Robert Kroger, portfolio manager for the Registry Collection’s Africa division, which has been operating in SA for about a year, says while there have always been concepts such as timeshare and syndication in SA, the luxury fractional development concept is new to the market.

While the fractional concept is similar to timeshare, most developments are in the luxury end of the market. A typical unit on offer in the fractional market costs anything from R2,5m.

“What makes it really different is that it is hospitality real estate and it comes with all the services one would expect in a four- or five-star hotel, such as a concierge service,” says Kroger.

The Registry Collection is a collection of fractional developments around the world where members buy into a development which is an affiliate. Buyers can exchange their time for time at similar luxury destinations around the world that are also affiliates of the Registry Collection.

Whereas a standard timeshare involves a buyer buying a week at a destination in SA or elsewhere, the fractional concept is usually three weeks or longer.

Kroger says the interest in the new trend is quite high among people over 50. These are affluent people who “just don’t see the sense of buying a second holiday home from a usage perspective”.

“They could easily afford to buy a second home but they want to buy for usage. There are not many people who can find four to six weeks a year to go away on holiday and travel to their holiday home. It is a non-yielding asset because they are not getting their usage and a second home is quite hard to rent out.

A fraction gives them the opportunity to buy just the amount of time and usage they require at a fraction of the price.”

Kroger says the lowest price for a fraction in SA is about R300000, which is paid up front.

“The highest we have seen is R795000 in this country,” he says.

He says the average price for a fraction in the US is closer to $230000.

“From a product-quality point of view, the products in SA are on a par with worldwide expectations and quality standards. There is good value here in terms of what is available in luxury properties.”

“The nice thing about fractionals is that the properties are solid investments in that they have a hospitality brand behind them. It will be high-end real estate, which is in demand and popular, and the projects are very exclusive. The clubs usually range from 70 members to 300 members,” he says.

Buyers own the asset for life and can bequeath it in their wills.

Each development that is a member of the Registry Collection has to have “20% flexibility for members”. This means 20% of the development has to be held by the club and is not generally in use. This prevents overbooking.

“Also, if a member phones at the last minute, there is a good chance of there being a property available.”

South Africans who are members of the Registry Collection can exchange their time locally for time in an international destination.

The Registry Collection offers a choice of 13 destinations, including the Pezula Private Residence Club. It has 90 members, ranging from entrepreneurs to executives.

“The majority of them are high-level executives, as well as corporations, and it is proving popular with the black elite,” says Kroger. He says at least 30% of the membership in SA is black and the interest shown by people who have not yet bought is “revealing a similar trend”.

Article by: Nick Wilson - www.businessday.co.za