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Saturday, 29 January 2005
Fractional ownership raises the stakes on timeshare. Alex Tilbury reports - Brisbane Courier Mail
Dreams of owning a luxury holiday apartment may not be out of your reach. A new concept in fractional property ownership could see you investing in a slice of the beachside dream pie, without the exorbitant mortgage but with legal title to the upside in capital gain.
The legal term "tenants in common" is not new as people have been buying property that way for aeons, with siblings, friends or other relatives.
People who remarry after having children from an earlier relationship often opt for tenants in common so they can pass on their share of the asset to their children in their wills.
Investors also use tenants in common to own shares in non-residential property - such as commercial, industrial or resort property - which might otherwise be beyond their reach.
Gold Coast realtor Tony Puls has established a business called Tenants in Common Pty Ltd to market properties using the fractional ownership technique.
Mr Puls says the benefits of jointly buying real estate include lower entry costs, risk spreading across multiple properties and access to high quality real estate.
Mr Puls says the tenants in common approach allows people to buy an interest in property for a $10,000 deposit.
"Fractional ownership of real estate through tenants in common allows the flexibility to spread your risk and diversify into different classes of property", he says.
"You don't have to know the other owners. It could be Level 36 of the Renaissance Tower in Surfers Paradise where 10 people could own 5.2 weeks of the year.
"It is a little bit like timeshare but people get real title to the property.
"Timeshare is very convoluted and you can have a bit of difficulty re-selling them because it is not really based on the real estate value, more the holiday resort's ambience.
"This is more back to bricks and mortar and you are not paying anything more than its value as if some people came and bought it outright.
"If you want to sell out you could first offer it to the other tenants in common because they might want it or know a relative who does. Then it can be offered just the same.
"The fact that property has become as expensive as it has today means this system is coming into its own," Mr Puls says.
He has an open house this weekend at a Budds Beach property on the Gold Coast after it failed to sell for $645,000 on its own but is now being offered as four one-quarter interests for $161,250 or 13 weeks per owner each year.
"It's much more affordable this way. It's the highrise properties close to the beach and shopping centres where people want to holiday but why would you own one outright when you can buy 13 weeks?
"If you wanted to holiday up at Port Douglas each year, why own a unit when you could own a quarter of one and still holiday for more than three months each year?"
Mr Puls is using "a new twist on an old law" by training real estate agents to become accredited members of TIC, otherwise he would run foul of the Corporations Act.
"When you start to promote anything to two or more investors, you fall under the Corporations Act and ignorance of the law is no excuse", Mr Puls says.
"But there is a class order exemption where you promote small-scale offers in investment schemes and product disclosure statements which is what we are doing in a small way.
"So we do an accreditation program and notify the Australian Securities and Investments Commission that these real estate agents are now going to operate under that section of the law.
"Agents cannot just decide they are going to start selling multiple interests in a property".
A key difference from joint tenants is that tenants in common can leave their share of a property to others of their choice. The rule of survivorship does not apply. This makes an up-to-date will very important as a deceased person's share will pass to the people nominated in the will, not to the other tenants in common.
Mr Puls says tenants in common is the only holding which allows owners absolute control over who would receive their share upon death.
With joint tenancy - as most married couples prefer - this is pre-determined as if one owner dies, the other receives the lot. Getting finance to buy a share in a property should present few problems.
The two Basic Choices
The two basic choices when people buy property together are joint tenants and tenants in common.
Joint Tenancy is a common option for two people who are married or in a long-term relationship. They own the property in equal undivided shares under the same title.
Joint tenants cannot own a property in unequal shares. If one dies, under the rule of survivorship the other person gets the deceased person's share. That happens automatically. It also means a joint tenant cannot leave her or his share to anyone else.
Tenants in Common was often used when the people jointly buying a property were friends, relatives or business partners. Under tenants in common, the shares in the property need not be equal. Three people can each own a one-third share, or one can own half and two others can each own a quarter share. Each share is distinct and separate. Tenants in common may own their shares under separate titles.
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