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Timeshare – A guide to everything you need to know

A little history

It will surprise many to know that the concept of timeshare has been around for over 40 years. Over this period the concept has evolved offering new variances and enhancements, making it an even better holiday product. Fixed weeks, floating seasons, alternate years, fractional ownership have all been developed to meet what owners demand from their holidays – quality, choice and flexibility.

The concept of timeshare began in 1966 in St Etienne Sur Devoluy in the French Alps when an entrepreneurial hotelier marketed his ski chalet under the slogan “No need to rent the room, buy the hotel – it’s cheaper”.  Although the idea did not catch on at the time, this resort became the foundation of the common concept of holiday timesharing.

The industry remained relatively dormant in the US until the recession of the early 1970’s when the concept started to attract more enthusiasm. The oil crisis made travel expensive and many of the holiday condominium complexes that had been built for whole ownership began to fail. Few wanted the financial burden of a year-round second property. A solution had to be found and timeshare provided this. The accommodation could still be sold, but rather than in a single purchase to one owner, each apartment was sold 50 times.

Unfortunately, the desire for easy profits led some developers to apply dubious selling practices, causing considerable concern and the development of legislation to protect the consumer.

It was in the 1980’s that timeshare really boomed. As holiday patterns changed and people took more holidays, timeshare holidays offered what many were looking for – quality accommodation, superb choice and great flexibility. Although the conventional resort property recovered, the price for second homes became out-of-reach for the average purchaser so cheaper alternatives were sought. By the end of the 80’s, the timeshare industry was well established with projects throughout Europe and the US.

Despite continued growth during the 1990’s, the image of the timeshare industry worsened. This was primarily due to the “cowboy” tactics of some of the participants looking for easy profits. Although the product itself was rarely criticised, many of the marketing and sales techniques have caused considerable distress and mistrust. In 1992, the Timeshare Act was passed introducing a compulsory 14 day cooling period on timeshare agreements entered into under UK law. 

Some interesting statistics

For an industry that gets little, if any, positive recognition the following statistics show how important timeshare has become within the general travel and tourism sector. Latest forecasts suggest that the timeshare industry will grow twice as fast as other more accepted travel options over the next ten years.

• 6.7 million households own timeshare rights worldwide
• 1.4 million of these live in Europe
• 5,425 timeshare resorts
• 1,452 of these resorts are in Europe
• $9.4 billion in timeshare sales in 2002

In a time when we are deluged with “holidays from hell” horror stories, it is particularly interesting to look at the satisfaction rates among timeshare owners. The great majority of owners express satisfaction with their timeshare. In the UK, 79% of owners are satisfied with their purchase. This may be due to the main distinguishing factor between timeshare resorts and traditional holiday accommodation – the extensive range of on-site leisure facilities and quality of the accommodation.

As a result of the growth and customer satisfaction, several major hospitality brands have recently become involved with timeshare. These include Disney, Marriott, Hilton, MacDonald and Sheraton.

The statistics have been taken from the OTE website (www.ote-info.com) and provided to them by Ragatz Associates and extracted from their “Resort Timesharing Worldwide: 2003 Edition Summary Report”.

What is timeshare?

Despite its recent high profile and the simplicity of the concept on which it is based, the variety of types within the industry and the diverse nature in which it sold make timeshare difficult to categorise.

In simple terms, timeshare offers holidays for a lifetime, allowing buyers to purchase an identified week or weeks in a chosen apartment or villa for use for a set number of years into the future, at today’s prices. As such, timeshare is a leisure product that involves the forward purchase of holiday rights. It is not the purchase of property, but rather the purchase of time and can, therefore, be linked with a range of accommodation types. Self-catering accommodation, yachts, health clubs and canal boats can all be timeshared.

The practicalities of the concept are as follows. The timeshare property is made over to a number of persons each, thought the payment of a capital sum, forward purchases the right to use the accommodation in that resort for a defined period each year, for a certain number of years. Depending on legislation, this right can last between 25-80 years in some part of Europe; while in others (such as Scotland) this can be in perpetuity. The fixed sum paid depends on the season and the unit size purchased. During the period of their stay, the owners exercise their rights to the property, while the management company deals with all responsibilities, with a trustee often holding title of the property for the owners’ benefits.

By owning a share of a development buyers share the occupancy rights and only pay for the upkeep of the time that they own in the form of an annual management fee. Sharing the cost of the development means that the resort becomes more accessible and affordable.

And what it’s not

It is important to remember that owning timeshare is a way of purchasing future holidays at today’s prices. It is a leisure product and should never be viewed as a property investment. Purchase secures future holiday accommodation, rather than direct ownership of property.

The different types of timeshare ownership

• Fixed – owners purchase a fixed ownership period, usually a week in length, allowing access to a specific unit at a specific time of year.
• Floating – owners purchase the right to use one or more weeks within a seasonal time band but not in a specific week or apartment.
• Right to use -
• Clubs -
• Deeded ownership -
• Fractionals
• Points – these are a form of holiday currency which have become a real alternative to conventional, week-based timeshare ownership. Members of a Points system of club use Points to pay for holidays with the price of the week express in Points. And they select their holidays form accommodation that is in the Points club’s stock of accommodation. Each unit of accommodation is valued in Points based on the apartment size, season, location, demand and the quality of the resort.
• Trial products

The opportunities of exchange

It is probably safe to say that without the development of the exchange facility, timeshare ownership would not be as wide spread as it is today. Faced with the opposition of owners who did not want to return to the same place, at the same time, the exchange facility was developed providing owners with the opportunity to exchange their time at this resort for that at another.

Time and again surveys show that the main motivation behind purchase is the opportunity to travel to other resorts and countries. Indeed, in recent research more than 80% of owners cited exchange as being the main reason for becoming owners.

There are now several exchange organisations. Of these, RCI and II dominate the marketplace with over 5,000 resorts available through them. As independent organisations, they neither own nor build resorts. Rather, they provide exchange facilities and travel services to their member base.

For many people, timeshare means exchange; the ability to swap their own weeks and travel to other resorts worldwide. This form of barter has worked very well and is actually very simple.

Members deposit their week with an exchange company and request space at the resort of the choice. The formula for this exchange is based on the resort quality, demand, apartment size, the time of year and when the week was deposited. The system is dynamic with values changing constantly.

Buying timeshare

The majority of timeshare owners made their first purchase after taking a presentation during their holiday. In most cases, they would have been invited to visit the resort from one of the marketing OPC agents that are placed around the tourist areas. A gift or incentive would have been offered as a thank you for taking a tour.

The sales process involves a presentation lasting for between 2-6 hours during which clients are shown around the resort, an explanation of the timeshare concept and an introduction to exchange.

For those looking to finance their purchase, this is available to those who fit with certain qualification criteria. Most banks and building societies will not provide loans for timeshare purchases.

Further timeshare purchases are normally made when the owner either returns to his resort or exchanges to another. The addition of a second (or more) week, an upgrade to a larger apartment or better week or the conversion to a Points system tend to take place at this time.

However, for many looking to either purchase first time or add to their ownership, the resale market is the best option. The resale market is a buyer’s market and timeshare weeks at great resorts are normally available at less than 50% of the onsite sales price. Most resale companies undertake the whole transfer of ownership for the new buyer making a simple and cost effective way to purchase future holidays.

The costs involved

Once the initial purchase price has been paid, there is an annual management or maintenance fee payable on each week (or Points membership).

This fee is usually set by the developer or Management Company and will cover the cost of maintaining the resort at the level expected by the owners. This will include gardening, decoration, replacement of broken items, staff etc. As the resort sells out, the Home Owners Association (if your resort offers this) will also have an input into the annual fee.

Currently, management fees range from approximately £220 to £500 depending on the location, quality and apartment size owned.

What about the resale market?

As previously mentioned, the resale market is a buyer’s market.

New on site timeshare purchases include the large costs of the initial sales and marketing activities. These costs can be anything up to 60% of the sales price. Thus, when the week is resold these costs are not recoverable.

While many timeshare owners are disappointed with the resale value of their timeshare weeks, it has to be remembered that timeshare is not an investment but a simple way to purchase holidays in advance.

The only way to minimise the huge drop in value is to purchase at a resort that is highly demanded, in a popular week (main holiday periods) and in at least a one bedroom apartment.

Legislation and the OTE

Currently new timeshare sales undertaken in the UK must adhere to the UK Timeshare Act and the European Timeshare Directive. This ensures that purchases have a 14 day cooling period to rethink their purchase and to cancel without penalty. No deposits can be taken during this time.

Sales in Europe must comply with the European Timeshare Directive. In line with this, resorts must offer new purchases with a 10 day cooling period and no deposits can be taken.

New additional European legislation is currently being discussed but timeshare is already one of the most restricted products on sale.

For sales outside the UK and Europe, it is important to check what protection timeshare is offered.

Timeshare resales are not covered by any of the above legislation.

The future

As our holiday patterns change, the industry has been quick to respond and develop new timeshare options.

The most recent development has been the introduction of the RCI Points exchange option. This has enabled timeshare owners who own a fixed or floating week of timeshare to exchange their time using Points as a currency. This has proved to be very popular as it has increased holiday choice and flexibility and for many has meant more holidays! There are now nearly 1 million RCI Points members worldwide.

Points systems have also been popular with developers who have set up their own versions covering their multiple destinations. All the main developers such as Disney, Hilton, Club La Costa and Sunterra all offer a points-based product.

One area of concern within the industry is the recent growth in the Holiday Pack product. These short term holiday membership products enable members to book accommodation at a number of resorts around the world for a minimal booking fee. While there are some that offer a great opportunity to holiday in some fantastic resorts and have the timeshare stock to support their promises, many of them do not. The result is that the good Holiday Packs are being tarnished by those who do not provide what they promise.

Summary

Timeshare is a superb holiday product and can offer owners the opportunity to holiday in great quality accommodation around the world in a cost effective way.

However, be realistic. If you own a blue season studio apartment and you wish to holiday in a red season two-bedroom apartment, then that is really what you should have purchased. The exchange systems cannot guarantee that you will be able to holiday in this type of accommodation when what you own is so different – no matter what the salesperson tells you. It is only fair after all!