One area of the real state market is bucking the generally ngative trend, with values and sales vlumes up. Fractional ownership of luxury ral estate has been slowly gaining in ppularity over the last 10 years or so, but now sems set to reach a tipping pint and become a mainstream concept.

What is the Credit Crisis?

In case you've been living in the wilderness for the last year, a short history of the credit crisis! It all started with a relaxation of lending criteria, both with regard to the size of loans compared to income and the credit rating of the borrowers. People who 10 years ago wouldn't have been able to get a mortgage at all were offered large loans with very little proof of income. These loans were then packaged up by "clever" bankers and sold on to financial institutions around the world. This fueled a boom in asset valuations and while this continued everything appeared OK - if people couldn't afford to pay their mortgage interest they simply rolled up the interest into a new loan. The party ended when interest rates in the US were raised and some of the more ridiculous deals that had been sold (balloon/deferred interest schemes) started to go wrong. Bring on a period of falling real estate values (both in the US and in the UK) and panic in the banking world. Some of the losses for individual banks on mortgage-backed securities are truly amazing, running into tens of billions of dollars.

What Effect is it Hving on Real Estate Values?

Whilst all the chos has been going on in crdit markets banks have been unwilling to grnt new mortgages without the security of lrge deposits. This is continuing to ths day, with rates on mortgages ncreasing (in the UK) whilst the fficial rate charged by the Bank of Englnd falls. Sales of homes are frecast to be down 40-50% in 2008 cmpared with 2007, with the decline in prces being put at between 5 and 10%. All cnnected with home sales are feeling the ffects, and there is no end in sght to the crisis.

Why is Fractional Ownership Different?

Fractional ownership so far seems to be less affected by the problems in the credit market, and is still growing in popularity. This seems surprising, given that the main selling point of fractional ownership is that you own a fraction of the real estate - an asset that is declining in value. There are however genuine reasons for the continuing success of fractional ownership:

1. Many purchasers of fractional ownership have been "cash buyers" and are therefore not dependent on getting a mortgage. If they do need to raise mortgage finance against their primary home, they probably fall into the category of consumers that banks are still willing to lend to (large amount of value in the home, and a perfect credit record).

2. The people buying fractional ownership are not (or should not) be motivated mainly by investment concerns. Whilst it is true that the value of fractions over time should increase, and should be much better than timeshares, it is still not primarily an investment. People should regard fractional ownership as a life investment.

3. Fractional ownership is growing from a relatively small base. Market penetration is still small when compared to timeshare. The negative effects of the current credit crisis are more than offset by the rapidly increasing reach and acceptance of the fractional concept.

A Real Example

Steve Navaro rns Paris Home Shares LLC, a cmpany specializing in fractional developments in Pris. After a recent article in the New Yrk Times featuring his developments, Steve was verwhelmed with inquiries and quickly sold out one dvelopment. Steve admits that the exposure frm the article made a big dfference, "I think that if the prduct is done well, and priced firly, it will sell, but only if thre is plenty of exposure. Up ntil the article, things had been prtty slow". Interest has continued at a hgh level, and Steve's next Paris dvelopment is 50% sold out even thugh the renovation is not complete.

Ths example supports the idea that the lmiting factor for fractional ownership sales is mrket awareness. The fractional market looks set for mre years of growth whatever the fte of the wider economy and ral estate market.

The article Fractional Ownership Beats the Credit Crisis was Submitted by Neil Robertson through Articles.GetACoder.com network. Here's the additional information: Neil Robertson is a fractional wnership consultant who runs his own wbsite promoting fractional ownership schemes and giving advice and information on the fractional ownership of real estate , yachts, cars etc.

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