Fractional Ownership in Real Estate
What is fractional home ownership?
Fractional home ownership is a co-ownership arrangement in which participants share the benefits (personal use, equity, potential profit from any future resale) and the costs (property management, bills, repairs) of property ownership. In practice, it means the individual purchases a stake in a property which entitles them to a certain number of weeks depending on how many other owners are part of the scheme. For example, in the case of a 1/8th ownership, the individual could spend in theory 6.5 weeks (or 45 days) each year in the property (52 weeks divided by 8 shares).
Fractional ownership vs. Full home ownership
4-bedroom villa in Marbella
EUR 590,000 per 1/8 ownership
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3-bedroom apartment in Marbella
EUR 575,000 - full ownership
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Property type: House
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Neighbourhood: Benahavis
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4 bedrooms | 5 bathrooms
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House size: 503m² | Plot size: 1,300m²
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Amenities: Swimming pool | Gym | Games room
Source: Sonhaus, Dec 2022, all photo credits go to the agent​
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Property type: Apartment
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Neighbourhood: Benahavis
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3 bedrooms | 2 bathrooms
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House size: 111m² | Terrace: 26m²
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Amenities: Communal pool | Communal garden
Source: Rightmove, Dec 2022, all photo credits go to the agent
How is fractional ownership different from timeshare?
Within a timeshare agreement, the property remains with the owner of the property, the individual only buys a holiday allocation, usually one or two fixed weeks per year, with no claim on the underlying asset (i.e. the property). Effectively, with timeshare, the individual does not own the property itself, but the time he could spend in somebody else's place (usually owned by resorts groups). On the contrary, with fractional ownership, the individual legally owns a share of the property (a deed for the portion of the equity owned), and can therefore benefit from appreciation in the property's value. Thus, the key to fractional ownership is 'ownership'; you own a share of the property, with the right to sell at any time. Using the same example as above, in the case of 1/8th ownership of a $1m property, each individual would own the property for $125,000 each. To sum up, fractional ownership is a hybrid of direct ownership and timeshare, combining the best elements of both.
Fractional home ownership is NOT timeshare
The rise of fractional home ownership
Second home co-ownership is not a new concept, it has existed on an informal basis for a long time. In some cases, co-ownership is an outcome of joint inheritance where the beneficiaries agree to share the property as a family vacation home. Other times, it is intentional, with a group of friends or family members buying a holiday home together as a more affordable way to own a whole home, and reduce the maintenance cost of the property. In either case, DIY co-ownership faced too many obstacles and challenges to properly scale.
With the emergence of new trends shaping our society (remote work and the 'sharing economy') as well as the emergence of new players, this emerging category is ready to take off. In the US, fractional ownership has been around for more than 20 years. In Europe, this concept is slowly gaining acceptance and in the last few years, the interest has increased dramatically. Fractional ownership is now the fastest-growing segment of the property market throughout Europe, and more than 20 fractional ownership real estate companies have been created in Europe over the past four years, raising hundreds of millions of dollars in funding.
Fractional home ownership: the emergence of a new model
Second homes are at the epicentre of a lifestyle shift. The global pandemic has accelerated and amplified trends towards flexible and remote working. Combined with the rise of the 'sharing economy' over the past decade and the power of real estate in wealth creation, the fractional ownership model is poised to play a much more overarching role in the future.
1) Remote working is here to stay
In 2020, the entire world witnessed a seismic shift towards remote work and hybrid living, accelerated mainly due the COVID-19 pandemic. In recent years, many companies have allowed more employees to work from home, and remote working is now expected to become an integral part of the new working world. The hybrid work model looks like it will be the new standard. According to the U.S. Census Bureau, the number of people primarily working from home tripled between 2019 and 2021, from 5.7% to 17.9%. Meanwhile, in Europe, 13.4% of employed people in the EU usually worked from home in 2021. (source: Eurostat). These data are confirmation there has been a major shift in the working world and in society itself, as a growing number of employees have developed an appetite to work remotely, not only from home (WFH) but also from other locations (WFA). The fractional home ownership model takes advantage of the rise of remote work, which has the potential to unlock new demand for fractional ownership homes.
2) The rise of the 'sharing economy'
In the last ten years, the emergence of a sharing economy has modified the way goods are consumed and owned. As reported by Statista, sharing economy services have exploded in popularity over recent years, with the total value of the global sharing economy projected to grow to USD 335 billion by 2025 (from only USD 15 billion in 2014). Personal and dedicated ownership may no longer be the primary way in which consumer needs are fulfilled. From transport to crowdfunding, the sharing economy is now part of every single aspect of the economy. With the idea of home ownership changing and the sharing economy already reshaping the real estate market (coworking, short-term rentals, house sharing, shared storage), the shift could also spill over to second homes, with fractional ownership being the solution to meet the demands of a new type of customers.
3) The power of real estate in wealth generation
In the past years, consumers have seen the enormous and enduring long-term wealth creation that comes with owning home equity. Net worth has tripled globally since 2000, with the value of residential real estate amounting to 46 percent of global net worth in 2020. Looking at house prices, in the EU for instance, house prices grew in total by 37% between 2010 and 2021. Naturally, many of us want a piece of that financial momentum. Investing in real estate can be an effective way to create and grow generational wealth.