Due to covid-19 occupancy levels decreased to 52 percent in Dubai by May, compared with the corresponding period last year. Similarly, average daily room rates in Dubai fell by 17 percent over the same period to $144 (Dh529), according to data from STR Global.
The concept has been adapted to a number of different types of assets, such as executive jet aircraft, luxury yachts, classic cars, racehorses, and works of art. An investor will be able to buy up to half or a quarter of a hotel or serviced apartment under the new initiative. A fractional title deed pertains to an individual unit that is divided into two or four fractional shares, each with its own title deed. As is the case with other properties, these deeds can be transferred, sold, or mortgaged. It is a more economical alternative to outright second homeownership. Such schemes are likely to be targeted at both GCC and international investors resulting in, at least an element of, foreign ownership of the relevant asset or property-owning SPV.
More about the fractional deed
Fractional shares are usually bought by investors in cash, due to the inherent difficulties in securing a mortgage or other types of financing for such arrangements. There are no minimum investment criteria that need to be that needs to be adhered to under this title deed model.
In relation to the fractional ownership, the owners will be required to enter into a management agreement(s) with entities that operate hotels or services apartments, detailing each of the parties' rights and obligations. Such agreements will likely be tailored to provide for not only the regular operating of the fractional ownership, but also include the procedures to deal with disagreements and disputes.
Additional considerations will include the rights and procedures agreed in any agreement or the management agreements and even the constitutional documents of the scheme between the fractional owners and the relevant management companies. a designated property timeshare law, which may reference fractional ownership models, has long been mooted but has not, as yet, materialized. It is essential, in terms of consumer protection, that such schemes are properly regulated through carefully considered legislation.
The concept is expected to encourage crowdfunding in Dubai's property market and help reduce the 4 percent transfer fee paid for a sales transaction, according to industry experts. The Dubai Land Department introduced a fractional title deed programme this week to boost the emirate’s hospitality industry and offer cheaper options to small property investors.
There are still many questions that are unanswered such as service charges, arrears, liquidity, holding terms, restrictions, exit options, etc. The market for fractional ownership of real estate has seen growth especially during and in times following sluggish property markets. Fractional ownership is more prevalent in and is targeted towards hotel-apartments and serviced apartments as reviewed by Property Lawyers in Dubai. The effect of COVID-19 across the world and the path to recovery of global markets could likely usher growth in the fractional ownership market.