Business

A Piece of the Pie

Proposed Registered Fractional Ownership Legislation for the TCI.

By Emma Riach, Senior Attorney, Karam & Misick and Sue Nickason, President, Caribbean Resorts Consultants Ltd.

One of the fastest growing segments of the recreational property market may soon be available in the Turks and Caicos Islands. Fractional ownership, which is also commonly referred to as vacation ownership and shared ownership, allows consumers to share ownership of a recreational or investment property with other like-minded individuals.
The concept of sharing high-priced assets reportedly began in the private jet industry. The affluent and astute private jet owners recognized the financial advantages of sharing the purchase price and maintenance costs associated with jet ownership. Now that concept has evolved to include yachts, cars, real estate, jewelry, fine art, fashion, race horses and even pets!

Point Grace Resort

Point Grace Resort

A new Ordinance (law) permitting fractional ownership of property (including condominiums and private villas) in the Turks and Caicos Islands should be passed this summer. The legislation is in draft at the time of writing this article and if adopted in such form, will enable purchasers to buy a fractional interest in a property. The interest would be individually registered at the Turks and Caicos Land Registry (akin to a deeded interest) and a separate register for each fractional interest would be maintained at the Land Registry in a similar manner to that already in practice for strata lots or condominiums. The size of the permitted fractional interest is expected to be flexible, but could be a minimum of 4 weeks, and could be as large as 26 weeks. (In other regions most fractional interests range in size from 4 to 12 weeks.) Consumers would also have the opportunity to purchase more than one fractional interest.
“This legislation promises to be progressive in the Caribbean region,” observes TCI attorney Emma Riach of local law firm Karam & Missick. “In many other jurisdictions, shared ownership proprietors cannot register title at the Land Registry. It is hoped that some lenders will be willing to lend to TCI fractional purchasers, which may make the fractional ownership industry here more attractive.”
In order to create fractional interests in a property, a developer or owner would submit a standard form to the Land Registry, which would then open the fractional registers. The application to Land Registry would also include a set of fractional bylaws (akin to strata bylaws, which would continue to apply to the property if a condominium) that would set out the “usage regime” between the fractional co-owners and would include a description of:
• When each fractional owner would have the right to use the property;
• How the usage calendar works; and
• How the sharing of strata fees or homeowners’ association fees (depending upon whether the property is a condominium or villa) would be calculated and costs specific only to the fractional property.

Windsong Resort on Grace Bay, Providenciales

Windsong Resort on Grace Bay, Providenciales

The fractional bylaws would provide for the appointment of an owners’ manager who would be responsible for overseeing and enforcing matters pertaining to the fractional property and its bylaws and voting at a strata corporation or homeowners’ association meeting. Such a manager could be either an owner of a fraction in the property or an independent manager.
The purchase of a fraction would be subject to stamp duty on the purchase price of the fractional interest. However, it is envisaged that the Turks and Caicos Government will determine the rate that the fractional purchase price is stamped at based on the rate that would be applicable to the property if it had been sold as a whole ownership property. For example, if a property were sold in four 1/4 interests at $250,000., each fractional interest sold would be assessed for duty (at current rates) at the rate of 6% on $250,000. (the rate applicable for a property sold whole at $1 million), even if the fraction sold is being sold for $250,000. (which would normally attract a duty rate of 4%).
Fractional ownership has grown in popularity because consumers recognize the value of only paying for the time they use at their recreational property, and yet still benefit from having a proprietary interest in property rather than the mere “right to use” property or membership in a vacation club. Recent trends have shown that purchasers of shared ownership product, and in particular fractional, use it as a means of purchasing an interesting portfolio of properties at world-class ski resorts, beach destinations, and in leading capital cities.
Industry reports suggest that fractional ownership holds its value better in a poor economy and sales recover more quickly following an economic downturn than whole ownership. In addition to the potential financial benefits of investing in fractional ownership, this type of product normally affords the owner more leisure time, greater access to amenities and services, and the ability to own a higher quality product at a lower cost.
The Turks and Caicos Islands community is looking forwards to the introduction of fractional real estate and joining the list of high-end destinations in North America and the Caribbean that have developed highly desirable fractional ownership resorts. The concept has been successful in top destinations such as Aspen, Vail, New York City, Muskoka, Vancouver Island, Maui and Los Cabos; and on several islands such as the Bahamas, Bermuda, BVIs, Cayman Islands, Jamaica and St. Barth. Interestingly, it has been reported by some leading US-based consulting firms who have produced market research reports on the fractional ownership industry that the average selling price of a fraction in the first half of 2010 was higher in the Caribbean than in the US, Canada or Mexico, where the average fraction in the Caribbean was $285,000. compared to $211,000. in the US.1
The Turks and Caicos Islands are well positioned to be a successful fractional ownership destination based upon the key criteria which have proven to be essential to other sought after locations. These include:
• Historical demand for real estate
• High prices for whole-ownership real estate
• High-end tourist profile
• Good proximity to purchaser home countries and ease of accessibility (fast, frequent, direct airlift)
• Prime site (e.g. world class beach or ski resort)
• Limited seasonality (so that investors can benefit from using their fraction during most times of the year)
• First rate amenities and services
• Reputable and secure legal system
• No annual property taxes
• Ease of purchase for aliens and no alien taxes or licence requirements

Sue Nickason, a Canadian management consultant specializing in the fractional ownership industry, who is president of Caribbean Resort Consultants Ltd. based in the Turks and Caicos Islands, believes that as the real estate market rebounds, demand for fractional ownership will grow. “The criteria for success has been proven and there is a growing segment of the recreational property buyer market that recognizes the advantages of shared ownership, especially in world-class destinations like the Turks and Caicos.”
The Turks and Caicos Islands meet most of the above credentials. Providenciales is 90 minutes from Miami, 3 hours from New York City and 3 1/2 hours from Toronto, with daily flights to many other large cities. There are no annual property, income or inheritance taxes. The one-time tax due on the purchase of a property (stamp duty) has been substantially reduced since 2010. Foreigners can own property without restriction or the requirement for any type of alien licence (as is required in some other island nations in the region) and can obtain non-working residency status.
In addition to being an attractive new investment option for purchasers, it is anticipated that the sales of fractional properties could also assist the local Turks and Caicos economy in a similar manner as seen in North America and other island nations in the region that have introduced fractional ownership. With more foreign owners in Turks and Caicos there could be a boost to the local economy from more repeat “owner visitors.” Such types of “owner visitors” have already “pre-paid” their accommodation and they typically spend more money on every visit both within the resort and outside the resort for vacation experiences, compared to visitors who stay in accommodation that they are paying for on a nightly basis. Hence, there could be a positive impact on all types of service industries and general retailers in addition to real estate sales and hotel management.
It is hoped that the proposed fractional ordinance will be enacted over this coming summer and allow purchasers to buy fractional interests in Turks and Caicos real estate from the second half of 2011.

Emma Riach (UK Barrister and Solicitor; and Turks & Caicos Attorney) is a Senior Attorney at the law firm Karam & Missick, Providenciales, Turks & Caicos Islands. To contact her, email emmariach@karammissick.com or call 649 432 3662.

Sue Nickason (BA, MBA) is president of Caribbean Resort Consultants Ltd. She can be reached at Sue.nickason@rogers.com or via phone at 705 431 5758.

1 Ragatz, Dr. Richard. “The Shared Ownership Resort Real Estate in North America Mid-Year 2010” report.



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