Fraction ownership

 Holiday homes need not sit idle only to be used a couple of days annually. Homeowners can lease them out the rest of the year, writes JECKONIA OTIENO

Most Kenyans working in urban areas tend to build houses in their rural areas where they spend only just a couple of days during holidays every year.

Unfortunately, when these houses remain unused for prolonged periods they get dilapidated and

However, this could soon change with fractional ownership. With this new trend, homes are built, managed and used as business investments or holiday homes when the owners do not need them. This arrangement is catching up fast at the Coast.

In Malindi, along the Kenyan Coast, investors are putting the concept of fractional ownership into practice and it is slowly picking up prominence especially among the middle class homeowners.

Mwembe Resort in Malindi is one such development where the practice has been tested and found to work.

Nassib Mumbo, the resident manager at the resort, explains that with this arrangement, a developer comes up and builds housing units at a particular place. People then purchase the units with an option of selling them off if they do not need them.

Mumbo says that this ensures that the unit owners are able to dispose off the units in the event they do not need them.

He points out, "In this arrangement, units are bought within a wider estate and the home owner creates a programme of when he or she requires to use the unit and then the rest of the time the owner can have it leased out."

The agreement is such that the management company takes the unit for the number of months that the owner is not using it and puts it into business as the owner gets an agreed amount.

More options

"The management puts the units into use thus earns income for the propertyfs owner. The management company only ensures that the unit is still in proper shape when the owner needs it."

This is advantageous to a homeowner as the property is maintained by the manager, guarded and renovated in case there are any breakdowns of the house.

However, there is a management fee that the owner has to part with. Different companies have varying payment arrangements.

Fractional ownership also allows the unit buyer a choice as to whether they want to have it as an investment to generate income or as a residential area. But Mumbo notes that he has observed that many people tend to make investment out of their units.

He says that fractionally owned units are cost effective and sustainable to the unit owners because when unforeseen circumstances such as price hikes strike, they do not affect the amount paid for management.

Similarly, when tourists flock to the Coast, since the amount paid to the owner of the unit remains constant without benefits of peaks registered during the high season.

Baobab Development Group Limited has also invested in the fractional ownership. The group, which has put up 33 units, consisting of one and two bedroomed units, at the Coast hopes to complete them by mid this year so that they can be ready for occupation.

Optimal utilisation

Douglas Jackson, Baobabfs sales and marketing manager says fractional ownership main strength is that they allow people to buy the amount of time the want in a housing unit. He further notes that so many people build houses, which they use for some few days after which they are back at their work places, and thus the house does not have any returns to the owner.

"Fractional ownership," he notes, "involves allowing people to buy the number of weeks they need to use a housing unit every year."

A whole year is divided into 13 periods with each period having four weeks. Therefore, the bare minimum number of weeks that can be bought for any given year is four while the maximum number that can be bought is 12. The company takes one week every year for renovations and maintenance.

Jackson states that currently the lease runs for 99 years, which means if a unit is acquired, the fractional owner can use it for the number of weeks that have been bought every year for 99 years.

However, if the owner for one reason or the other decides that they do not want to use the unit anymore, they are allowed to dispose it with the first right being that of the management company.

Owners of fractional units may choose to deal directly with their own clients for example when they want to rent out or sell off their units.

The managers explain that management companies get the first right to buy the property so that the property does not end up being undervalued simply because the seller needs to make a quick sale.

"The management company in most cases would discourage people from conducting business without passing through the management company because of the many implications that might accrue," states Mumbo.

New concept

The concept that is relatively new to Kenya but is steadily expanding with rapidity. Mostly, these kind of investments known occur in areas where buying land is not cost friendly. Some of the areas where fractional investments are common are prime land near cities and areas near the beaches.

Says Jackson: "This is relatively new in Kenya but in other parts of the world it is quite popular; take examples like South Africa, Europe, America and Asia where this concept has taken root."

This arrangement has been found to be common with foreigners who come to have their holidays in Kenya but want to avoid the trouble of looking for where to stay; they just buy the number of weeks they feel is enough for them every year and just jet in to use them.

However, Jackson says that it is also aimed at promoting domestic tourism, not only in Kenya but also in the wider East Africa region. He intimates that plans are afoot to extend into other parts of country from the Coast; with Naivasha as the next target.

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