Personal-Finance

Is it safe to buy time share?

2017-04-15 10:31

The phrase “time share” can conjure up myriad mixed emotions. Some have happy thoughts because they’ve landed a bargain holiday at a luxurious resort where the family can frolic on a regular basis. But for others, the phrase brings up feelings of anger. Many are concerned about being fleeced or being tied to something that they may not be able to pay for in the future.

Who can blame those from the negative camp for feeling this way when the industry has had its fair share of scams? The good news is that the regulators are now paying attention to this sector.

In November last year, the National Consumer Commission (NCC) announced that it was in the process of conducting a public inquiry into the vacation-ownership industry to find permanent solutions for alleged consumer challenges.

Trevor Hattingh, media liaison officer and spokesperson for the NCC, has confirmed that it is now in the process of creating a three-member panel of property and consumer law experts. Once this is complete, the inquiry is set to take six months.

“The purpose of the inquiry is to unearth all consumer challenges, provide a holistic view of the status of the industry across regulatory boundaries, and to recommend appropriate action to be taken by government to address the challenges. Based on information from complaints received from consumers, the issues they have relate to, among others, contracts in perpetuity, overselling and overbooking and product marketing standards,” explains Hattingh.

The benefits and pitfalls

Since January last year, Melville’s office has received 130 vacation-ownership-related complaints. Seventy-six consumers complained about agreements or the cancellation process, while nine felt the service or expected quality was not up to scratch. Six people claimed they were subject to bad treatment or exploitation and six complained about unfair terms.

But can the entire time share industry be tarnished with the same brush? Those in the know believe that the industry doesn’t deserve the bad reputation.

“To give a balanced view, it must be acknowledged that the vacation-ownership concept is a good one in that it provides people who would not otherwise be able to afford to do so with the benefit of owning a vacation home without having to pay for the part of the year that they do not use it. The cost of a vacation-ownership unit may compare favourably to hotel or B&B accommodation for a family,” points out Melville.

Among many other benefits, time share schemes are also known to offer variety and options to members. “It’s a great way to have an affordable annual holiday for your family and gives an owner access to more than 3 600 resorts around the world through various time share-exchange organisations,” says Nicky McCulloch, owner of Cape Escape – a time share resale specialist.

This is how time share works: The general idea is that a group of people have the right to use a vacation property and they split up the year among them. For example, they each get one week a year. Time share schemes are also referred to as points clubs, fractional ownership, or destination and private residence clubs.

According to the Vacation Ownership Association of Southern Africa (Voasa), South Africa boasts a mature R3.5 billion-per-annum shared vacation-ownership industry, consisting of over 500 000 shared vacation owners with an 85% occupancy rate of 500 000 shared vacation ownership weeks. There are several ways in which to buy time share. Traditionally, people bought into perpetual contracts. You can also invest in them for a given number of years. You are generally responsible for paying levies that go towards the maintenance and upkeep of the establishment.

Perpetual contracts were seen as an asset and many people bought into them thinking that they were a perfect investment to leave for their children.

However, some ran into problems when they could no longer afford to make the payments, either because they lost their jobs, retired or were for medical reasons unable to travel and could no longer enjoy the benefits of the time share offering. In certain instances, the children weren’t interested in taking over the time share agreements owned by the parents.

A sales and marketing specialist who currently works for a well-known time share developer, but who refused to be named, explains that for some, a time share contract became a liability – an “ugly little monster” that they couldn’t get rid of. “However, time share companies were holding people to book, pointing out that they had signed a perpetual contract.”

That said, he points out that many time share investors have done well. “For example, with the Peninsula Hotel in Cape Town – if you speak to someone from there, it has turned into a bit of an investment. Not many people are unhappy with it. They can hire it out for top dollar as it’s well run
and well maintained.”

He admits that there are some unscrupulous agents. “Some people did lose money in time share because of unscrupulous developers. Then again, this can happen in any industry. There are also bad investments. People have bought into cheap and nasty time share resorts that are not well run.”

Protecting yourself

Other common complaints when it comes to time share schemes is the lack of availability, high levies that escalate astronomically over the years, and the inability to resell the time share when you no longer want it. Experiencing difficulty in getting out of contracts is another big bugbear.

However, there’s more protection now and the industry has become more flexible. Melville points out that the newer contracts are likely to be for a fixed term for which there is a general limit of two years, “unless such longer period is expressly agreed with the consumer and the supplier can show a demonstrable financial benefit to the consumer”.

If you have buyer’s remorse, there is a five-day cooling-off period applicable to certain new contracts under the National Credit Act, and those entered into with Voasa members.

“Thereafter, a cancellation penalty becomes payable unless one has solid grounds and evidence for voiding the contract,” says Melville.

However, not being able to use your time share can end up benefiting you because it’s possible to make money by selling your space online. You can also sell it to other time share members. Check with your resort, because those who own the weeks before or after you may wish to purchase more holiday time.

Purchasing time share may end up being one of the best investments you’ll ever make. But the key is to do your research before you sign on the dotted line and to buy from a reputable company. Experts advise that buying into a cheaper resort may not always be the best strategy, because older resorts typically need more money for maintenance and tend to increase their levies by higher increments.

“Be aware that there is no guarantee that there will be a resale market as vacation ownership is not a traditional investment, but a means of funding vacations and that levies may escalate. Are you buying points (a fairly nebulous right), or the right to use a particular unit for a specific period? If it’s points, google whether there are complaints about lack of availability for that particular scheme,” advises Melville.

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December 10 2017