1/6/2009
RESEARCH PREDICTS FRACTIONALS WILL BE THE FIRST TO EMERGE FROM THE DOWNTURN
The luxury fractional segment of the vacation home market will be the first to rebound from the current real estate morass, according to Dr. Richard Ragatz, well-known real estate researcher.
"The fundamentals of the vacation home market have changed," Ragatz stated. "The days of buying a three-million-dollar house on the beach or at a ski resort with the expectation of 20% annual appreciation are gone for the foreseeable future."
Ragatz noted that most luxury vacation homes sit empty for the majority of the year. "In the past, owners could justify the high cost and low utilization based on a significantly higher re-sale price," he said. "Based on recent events, it's difficult to imagine that scenario continuing in the next few years."
The top-tier fractional products are known as residence clubs. These clubs typically are expensive resort developments in which six to ten households share ownership of each residence. A club staff cares for the property and provides hotel-like services. Club reservation policies dictate use -- which is unlimited, subject to use by other owners -- much like tee time privileges at golf country clubs.
Dr. Ragatz and his Eugene, Oregon-based company, Ragatz Associates, have tracked the resort real estate market for many years, especially the fractional ownershipsegment. He noted that fractional sales have increased dramatically during the past five years and grew in 2007 despite the real estate downturn. However, he expects these sales to be off in 2008.
"The financial crisis has affected every part of the real estate market," Ragatz said. "But I believe, in the long term, recent events will enhance the attractiveness of the high-end fractional products as compared to whole ownership."
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