Less than a decade after its successful introduction in the USA, the concept of shared ownership of second homes (otherwise known as fractional ownership) has successfully launched in Australia and is gaining market interest amongst property developers in several resort locations.
Delegates at the inaugural Fractional Real Estate Essentials conference, held as a pre-event to the annual Australia, New Zealand & Pacific Hotel Industry Conference in Sydney this week, heard leading industry participants from the USA and Australia explain what is driving interest in the concept, how fractional ownership works from the viewpoints of developers and buyers and the types of opportunities and challenges in its introduction in Australia.
“Overseas experience demonstrates that with the right location, right concept and right development team, fractional projects can result in an outstanding outcome for developer and consumer alike” conference chair and Horwath HTL Managing Director Mr John Smith said. He added that the level of local interest in the concept was self evident from the fact that the conference sold-out a week before it was held and was attended by over 160 delegates. “Feedback from delegates at the end of the event confirmed that this type of property development is about to move into a second phase in Australia which is likely to result in new projects emerging to join the current pioneer projects under development in Noosa Heads and Palm Cove” Mr Smith said. [member]
Leading US fractional consultant Dr Richard Ragatz reported that whilst North American fractional sales declined to around $900 million in 2009 (from $1.5 billion in the previous year) this was primarily due to an inability to readily obtain consumer finance and that despite this, interest in the concept remains strong in North America.
Research undertaken by Melbourne market research company Bergent Research indicated that in Australia and New Zealand there is a surprisingly high level of market knowledge of the concept, largely based on shared ownership of holiday homes. Bergent also reported that prospective purchaser types in Australia and New Zealand are open to fractional ownership in its current form. This view was supported by Dr Ragatz who speculated that based on sales experience in the USA, there is a potential market depth of 61,750 households in Australia, representing a potential sales volume of between $9 billion and $70 billion.
Presentations by leading legal firms Blake Dawson and Baker and McKenzie highlighted the time consuming and costly challenges that have to be overcome in order to achieve regulatory compliance in Australia. However it was also pointed out that an onerous regulatory environment is ultimately a positive factor because of the assurance it provides consumers in considering fractional offerings.
The developers of Australia’s first luxury fractional project, Firstlight Noosa, explained how regulatory and other challenges were overcome by their company in being able to launch their project and achieve pre-sales of over $100 million in less than 6 months. Live project insights were also provided by other developers of current projects in Australia and leading specialist consultant Paul Dean provided insight on the pre-requisites for success and traps to avoid in pursuing this type of development.
At the end of the conference, delegates were provided with a copy of a report recently prepared by Bergent Research, Baker & McKenzie and The Registry Collection on the fractional industry and its prospects in Australia.
Horwath HTL (“HHTL”)
HHTL is Asia Pacific’s largest and most experienced firm of hospitality consultants. Operating from 12 offices in the region, the firm is entirely focused on providing specialist advice in the hotel, tourism and leisure industries and has worked on over 1,000 projects in over 28 countries and 215 locations. HHTL is associated with Crowe Horwath International, one of the world’s largest accounting and management consulting firms.
HHTL’s Australian operations are headquartered in Sydney. The firm’s highly experienced directors and consultants have worked in almost every aspect of the industry, including:
• Transaction Roles
• Purchaser and Vendor Due Diligence
• Capital Raising
• Hotel Operating Reviews
• Benchmarking Roles
• Accountability Reviews
• Independent Expert Roles and Dispute Resolution Roles
• Operator Selection and Management Agreement Negotiation
• Pre-lending Bank Reviews
• Market Demand / Feasibility Studies
HHTL Australia annually publishes the leading publication, Survey of Operations which tracks top to bottom line hotel operating performance for over 200 leading hotels and resorts in Australia and New Zealand.
Further information can be obtained from the HHTL website at http://www.horwathHTL.com