Fractional Vacation Market Declined 44% in 2009

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According to conventional wisdom, the fractional model would benefit in the market downturn, as buyers looked for less expensive ways to buy property.

Instead, fractional sales in North America dropped 44 percent in 2009, according to industry analyst Dick Ragatz. While 18 projects were launched in 2009, 35 closed due to lack of financing or sales, he reports.

The hardest hit sector was non-equity "destination clubs," with only seven remaining in operation, compared to 21 in 2007. "There is a basic flaw with this model in times of real estate price depreciation," Ragatz said during his annual state-of-the-industry conference.

An increase in average maintenance fees, which rose on average 9 to 20 percent, may have played a role in discouraging buyers, Ragatz suggested.

A dramatic increase in low-priced foreclosure property may have also diminished the value proposition for fractionals, an analysis in OPP magazine suggests (free registration required). Fractional prices decreased less than 10 percent, while prices for whole ownership property dropped 25 to 35 percent in many resort markets, in large part due to distressed property.

"Distressed sales were absolutely a factor, especially in the moderately priced fractional market," Ragatz told OPP.

Many developers turned to fractionals last year, hoping to reluctant to buy a whole unit may pay for partial ownership. But faced with competition from low-priced units flooding the market, developers like Taylor Wimpey in Spain have since backed away from the fractional model.

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