Fractional: The Future of Fractional Real Estate
Turbulent economies mean turbulent times for consumers and the last 18 months or so hasn’t been any different. But with the uncertainty and in some instances the increasingly isolated social groups that we find ourselves in, it does make us all go back to basics and question what’s important to our family unit and society in general. There’s a renewed focus on social well-being and Maslow’s hierarchy of needs becomes a lot more pronounced. We’re becoming a more consumer-orientated society and ‘less is more’ is the cry.
The recession has brought into focus our ability to rethink our lifestyles and place renewed emphasis on the environment, healthcare, income, equality and savings. 25 years ago the US consumer saved around 10% of their earnings. It should be no surprise that mortgages aside, the savings rate is zero % and entering negative proportions. This will have a long term effect on consumerism, high street retailers and the luxury sector in particular.
Commenting on current market conditions, Pam Danzinger, CEO of Unity Marketing which specializes in consumer insight within the luxury sector in the USA recently said “ Luxury is over. This is the price to pay for our previously over indulgent lifestyles.” A rather worrying statement for many luxury brands to contemplate.
The retailing landscape will change forever. High streets nationwide are already succumbing to unpleasant recessionary times and with the unforbearing velocity of sales migrating to the web many community High Streets are set to become depressingly flat and empty places.
Consumers are making short term adjustments canceling luxury spending and stretching their wallets.
It is however important to point out that we are not in a depression and any misery associated is not so easy to spot like it was in the 1930’s. The only relation to the Great Depression right now is the rhetoric. Yes, the crisis within the financial markets has led to job losses in the tens of millions globally, and even those with secure incomes face fear and uncertainty. Government spending has expanded even though credit has contracted, so there really is less money to spend. We’ve also seen Iceland, Eastern Europe and Thailand already reeling from instability aggravated by the economic squeeze.
It is the Western elite that has supposedly been hit hardest and changed forever, but they are pondering their losses while downing £10 gin and tonics in London. Nowhere is there the massive dislocation of populations or wholesale social collapse of the 1930’s. Unemployment is 7.1% in the United Kingdom and 8.5% in the United States, but that’s nothing compared with the more than 35% rate of the 30’s. The consequences of joblessness are also less severe. During the Depression, the losers were laborers, farmers and agricultural workers who had little to start out with. There was no Social Security, no dole, no emergency medical system for the impoverished – not even a flawed one. There were no safety nets to catch the falling middle class. Losing a job and a home meant losing everything. Government had little to offer, and offered little.
For now, the world is living in an amnesic state. The wide gap between rhetoric and reality for all the major economies shows few signs of narrowing, and those perceptions can make matters worse. Yet somebody is buying the tens of millions of iPhones that were sold in the past six months, not to mention Manchester United Premier League football tickets et al to finance Ronaldo’s latest move.
In the end this period may be remembered as a severe economic recession accompanied by a great psychological depression. Perhaps what the world needs, even more than a master banker, is a global therapist, someone to minister to the collective psyche and media, or at least divert its focus away from the relentless stream of excessively bad news.
The good news is the current fractional ownership trend will continue and it is highly likely people in the future will spend less on new possessions and no less on new experiences.
In April 2009 Northcourse and Fractional Life commissioned the first report dedicated to Trends in Fractional Real Estate Europe http://www.fractionallife.com/trend_report.asp confirming fractional property home ownership is growing in Europe with around 92 active fractional developments.
Within the last year there’s been the launch of the Fractional Summit www.fractionallife.com/news_london_invaded_by_fractional_enthusiasts.asp .
Europe’s fractional industry trade conference which has grown into an international event and attracted over 210 delegate attendees in April 2009. Fractional Life launched its first fractional trade awards www.fractionallife.com/awards.asp , attracting entries from all around the world and the next consumer event dedicated to fractionals “Fractional Life Expo (www.fractionallifeexpo.com) takes place 14 – 16 September in the heart of the City of London.
12 months is a long time in the whole ownership market and seems even shorter in today’s fractional real estate world.
Recent events have certainly made one think how a severely depressed overseas whole ownership market will ever recover thus allowing the fractional real estate market to gain ground in 2010.
The old adage ‘location, location, location’ that’s kept many real estate agents in fine fettle until recently still rings true but does not perhaps have the same gravitas it once had when applied to current conditions within the fractional real estate marketplace. True, fractional developer finance is virtually non-existent and consumer fractional finance is very limited. Obviously those developers fortunate to offer their own finance are in a very strong position. Location is still an important factor to the fractional buyer, but what current buyers are going to question before purchase is whether the developer is reputable, to be trusted and creditworthy irrespective of location benefits.
As we come out of recession following the trillions of write-offs, millions of lay-offs, foreclosures and bankruptcies life will be more predictable and less uncertain. So what will be the ‘new normal’ and what will recovery look like?
For me whole ownership has peaked at 70% or so in the US and UK and it’s likely this could decrease to around 50% over the coming years.
Businesses are going to be rewarded for inventiveness and entrepreneurial spirit. People are going to own less having smaller possessions for larger lives and care less about what they make and more about what they do, what they achieve.
by Piers Brown for Fractional Living
