five expert tips to consider when buying fractional ownership
08 April 2008

Fractional ownership is becoming more and more popular in South Africa, boosted by the burgeoning costs of buying your own holiday home.

1. Check that the seller or promoter is SAAFI-approved

SAAFI is the regulatory body that governs fractional ownership promoters as well as service companies in South Africa, with strong consumer protection objectives. Approved SAAFI members have a strict Constitution and guidelines to adhere to. Ask your promoter or service company to provide you with proof of approved membership, and look out for the approved SAAFI member number at the bottom of the logo. To find out which companies are SAAFI-approved or for more about SAAFI, go to http://www.saafi.co.za/members.html

2. Request a breakdown of the monthly levies for the first year

With all property purchases that are subject to a levy, you need to know what you are liable for each month - and what is being funded and covered by the collective levy. Typically, you are purchasing a share in one property that is looked after by the management company, and so your levy should comprise the management fee, housekeeping, insurances, DSTV, check-in procedures, and possibly a maintenance fund.

3. Make sure your deposit is held in a trust account

When you have decided on your fractional ownership purchase and are committing to the deal, possibly by making a deposit, make sure that the account you are submitting your deposit to is a legitimate account and held in trust. The last thing you want is to put a deposit down for your dream fractional unit in a resort yet to be competed, perhaps from a company you have never heard of before - and a few days later the company and your deposit disappear. Check the details, scrutinise the contact, ask questions - and if you are still hesitant contact your attorney for their opinion or perhaps SAAFI for a reference.

4. Check the date of delivery of the actual unit you are purchasing

Many fractions are being sold in units, property or resorts still to be completed. While there is a return on investment upside to getting into your property investment early, you should be aware that the unit you have bought into could take longer to build or be delayed for some reason. Do some research on the resort or area that you are buying into to ensure you are going to get what you have been promised in terms of resort infrastructure and resort amenities, and that the quality of building and interior finishes will be as you have been shown or told. To avoid disappointment, scrutinise the sale of shares contract for the estimated transfer of shares date as well as the occupancy dates of your unit for usage. Beware of open-ended delivery dates. If planning to use the unit close to the transfer of shares date, be ready for possible delays before you book flights for you and your family!

5. Review the rental clauses in your contract

One of the benefits of a buying fractional ownership is that you can rent out your unused days or weeks and accrue the rental income. This is handy to off-set your levies or simply to deposit into your account. Should your allocated time be rented out on your behalf by a third party such as the managing agent, this income would possibly be subject to a handling fee or commissions. Make sure you are clear on these rates before you rent out your weeks. It is advisable to check your insurance liability should breakages or more serious damage arise in your absence, or while in occupancy of the unit. If you are unsure regarding liability, it may be worth getting your attorney’s opinion on your contract or to discuss your queries with your insurance broker.

Contact Dirk Wilson on 072 591 0582; 021 556 5064; email dirk@fractionalownership.co.za; Visit www.fractionalownership.co.za