Fractional Ownership

Growing Popularity

Investing in property through fractional purchase has become increasingly popular in recent years. It was pioneered in the USA, but has become common also for UK and European investors. The advantage is that it enables Investors to invest a much smaller amount in a particular property, which in turn makes it easier for them to have a balanced portfolio of different types of investment.

Present Financial Climate

In the present financial and economic climate fractional ownership becomes escpecially attractive. People need to put their money somewhere; and every typeof asset has risks that are difficult to assess. Even cash is risky, with highly volatile exchange rates, and with continuing uncertainties surrounding banks and inflation. So spreading money between different asset classes is the wisest policy. Investing relatively small amounts in particular properties in different locations is an excellent way of enacting this policy.

Investing in Margarita

Global tourism will undoubtedly decline while the recession lasts. So people will be looking for economical destinations that provide a degree of luxury. Margarita is close to North America, so access is relatively cheap. And prices are very low compared with other Caribbean Islands. Thus, it is an excellent destination to invest in tourism.

Caracola As An Investment

The price of property at Caracola is far lower than comparable islands in the Caribbean. This is because labour remains very cheap, so the cost of building is very low. However, the Margarita Authorities are placing strict controls on development, so land is becoming increasingly scarce. Another factor is that Margarita is a VAT and Duty Free island, thus lower costs even further. So as Margarita grows as a destination, prices of property will rise steeply.

Margarita Within Venezuela

Margarita has "freeport" status within Venevuela, meaning that it is exempt from import tariffs. In addition its economy and politics are largely insulated from that of the Venevuelan mainland. Venezuela is dependent on oil, and in recent years under Hugo Chavez, its politics has been left-wing. Margarita, on the other hand, derives its income almost entirely from tourism and fishing, and retains free enterprise.

Owning Fractions

Each fraction represents 25% ownership of a property at Caracola. Thus you will hold 25% of the shares of the offshore limitied liability company that owns the property.

Price

The payment for a 25% fraction is 25% of the list price of a property purchased as a whole. So there is no premium for buying a fraction.

Ownership Group & Agent

As a Fractional Owner, you will be a member of the Ownership Group that owns your property. The Ownership Group will have a professional Agent who will undertake all the administrative tasks on your behalf.

Discount & Reserve

Since the developer is receiving the while sum for the Property at the outset, rather than receiving instalments, the price paid by Fractional Owners is 10% lower than the price paid by those purchasing properties as a whole. This discount is set aside on behalf of the Ownership Group as a Reserve to cover the costs of the Agent (see below) and of the eventual refurbishment of the Property. This ensures that Fractional Owners are most unlikely to be asked for any additional payments.

Hotel Operator

The Ownership Group will enter the standard Rental Contract with the Hotel Operator, Geneva Hospitality. The Hotel Operator will manage the Property, and pay the Ownership Group the guaranteed rental.

Number

You can purchase one, two, three or even four Fractions of a Property. Since there is a discount on Fractions, you may wish to purchase four Fractions of the same Property, rather than purchasing the Property as a whole.

Fee

As with those purchasing properties as a whole, Fractional Owners must pay a small additional sum to cover legal and professional fees.

Completion

The Property will be complete no sooner than 1 July 2010 and no later than 31 December 2010.

Rental Income

The Operator of Caracola will be Geneva Hospitality, one of the major US Operators of Condominium Hotels. They have guaranteed a rental income of 7% of the purchase price paid for each Property, rising after 5 years to 8.25% provided the occupancy levels are above 75%. Thus throughout your period of Ownership, you will enjoy a healthy return on your investment and then at the end, there will be the Capital Appreciation on the property itself.

Usage

Under the Rental Contract with the Hotel Operator, Owners of the Property have the right to use the Property for 4 weeks per year. Thus each Fractional Owner will have the right to use their property for one week per year per Fraction. You can opt to stay longer, but will have to pay the normal rate.
Note that if you purchase your Fraction through a pension, you will have to waive your right of usage, but can stay at Caracola at the normal rate.

Sale

You may sell your Fraction at any time, or give it to a relative or friend, or bequeath it. The Ownership Group by unanimous decision can sell the whole Property at any time.

Pensions

You may purchase your Fraction and hold it in a UK SIPP (Self Invested Personal Pension) or an Irish SAP (Self Administered Pension).

Transfers From Other Pensions

You can transfer money from other pensions to put into your SIPP or SAP. Many managed pensions have performed poorly and even lost money. By transferring funds from other pensions into a SIPP or SAP, you control how they are used. Thus you can choose to use the funds to invest in a Caracola Fraction. We can refer you to an IFA to advise the details, including the transfer value of your existing pension.

Tax Rebates On Pension Investment

When you put money into a SIPP, you can reclaim Income Tax on that money. The SIPP Provider automatically reclaims the standard rate of 20%; so for each investment of £10,000, you only need to put in £8,000. If you are a higher rate taxpayer, you or your accountant reclaims a further 20% - for which you will receive a pleasant windfall.
For Irish SAP holders, your contributions into your SAP are free of tax and you can contribute on a scale of 15% to 40% of your annual salary to maximum annual salary of €254,000 (indexed from 2007).

Tax Exemptions

Funds in SIPPs and SAPs are exempt from Income Tax and Capital Gains Tax. So you will pay no tax on your returns from Caracola Fraction.

Lump Sum And Draw Down

At any time after the age of 55 you can withdraw up to 25% of the funds within a UK SIPP or Irish SAP as a tax free lump sum. You can then draw down the rest as income as and when you need it.

For Information on Ownership through Pensions Click Here