The case against timeshare

But is timeshare really value for money? Or is it a case of smooth-talking sales staff relying on unethical gimmicks to persuade uninformed buyers to purchase (often at great expense) products they will rarely use?

Judging from the flood of letters Finance Week receives regularly from dissatisfied timeshare owners, it appears that the industry is still too often misleading consumers with false promises.

One of the main complaints is that people are talked into buying as many timeshare points as possible on the assumption that they will automatically provide access to the holiday accommodation of their choice.

Brokers usually advise purchasing sufficient points to qualify for a week’s stay during the Christmas season at a so-called Gold Crown resort – RCI’s most popular resorts, which include places such as the Beacon Isle at Plettenberg Bay, Sun City Vacation Club, Kruger Lodge in Hazyview and Wilderness Dunes near Knysna.

Sufficient points for a week in December at one of these resorts can cost anything between R60 000 and R100 000 (excluding annual levies and RCI membership fees).

But the catch is that when points holders want to exchange them for a holiday, there is usually no room at the inn. And that is because the broker often failed to emphasise that no matter how many points held, accommodation is always subject to availability.

So, though people fork out fairly large sums to secure their annual dream holiday, there is no guarantee they will ever get the accommodation of their choice.

Another practice that has raised questions (and eyebrows) is the holiday clubs’ tendency to finance points at fixed interest rates – for five or 10 years usually at a rate substantially higher than prime.

For example, some holiday clubs financed timeshare points in 1998 (when the bank prime lending rate reached 24%) at a rate of 30%, pegged for five years. So those people who fixed their financing at these levels are now paying twice as much interest as they would have been had they borrowed the money from their home loans.

There is also a great deal of unhappiness over the fact that some holiday clubs do not keep their promises to buy timeshare points back after five or 10 years. It makes you wonder how much value the clubs attach to their products.

Many timeshare owners are also disappointed by the poor, if any, investment returns. In most cases, owners do not recoup their money when they sell. This is supposedly because timeshare is a consumable product that depreciates over time, much like a car.

This argument probably has merit but offers little consolation for the many investors who have laboured under the impression that they are buying an asset that would increase in value.

One example of a timeshare owner who believes he has been misled is Simon Terblanche, a civil engineer in Pretoria.

In 1998, Terblanche paid R58 000 for 74 timeshare points – the maximum number of points available at the time to qualify for two peak weeks (in season) of accommodation at a Gold Crown resort.

Terblanche had to pay a cash deposit of R5 000. The rest of the purchase price was financed by the relevant timeshare club at an interest rate of 24%, fixed for five years (in other words, nine percentage points above the current prime rate of 15%). He also pays annual levies of about R2 000 and RCI membership fees of R350/year. And there is a booking fee.

Four years have passed and so far the only thing Terblanche has been able to get in exchange for his investment of R58 000 (plus interest) is three days at Sun City’s Vacation Club.

The standard reply on half a dozen other occasions when he wanted to use his points for a timeshare holiday was simply: “Sorry, we’re fully booked.”

Terblanche reckons the sale of points is a money-making racket as there aren’t enough timeshare resorts to accommodate everyone who has points.

CONTINUED growth in timeshare sales confirms thousands of South Africans regard it as a cost-effective, convenient holiday product, says John Meyer, executive director of the Timeshare Institute of SA.

“Industry sales exceeded R400m last year, reflecting 14% year-on-year growth. About 260 000 South Africans own timeshare in 187 resorts with a property value of more than R9bn.”

Meyer admits return on timeshare investment has been less than spectacular but says it must be regarded as a lifestyle purchase and not primarily a financial investment.

“The value comes from use of the product, not the resale.’’

Meyer says timeshare is a recession-proof holiday opportunity in the sense that, once the timeshare is paid up, the only extra costs are the annual levies for maintenance.

“With the rand’s depreciation against international currencies, the benefit of using timeshare for international travel is irrefutable. The cost of an international exchange is about R1 400. If you add the average annual levy of R1 600, it means a family of four can get self-catering accommodation in an international Disney/Hilton/Marriott/Sheraton destination for only R107 per person per night.”

Nobby Clarke, national manager of client services for The Holiday Club, says that when considering the cost implication of a timeshare purchase, the initial capital outlay should be discounted (over 10 or 20 years) as any points or fixed weeks purchased are in perpetuity.

“The points bought are actually shares in an unlisted public company and consequently an asset in your estate and may be passed on to heirs.

“Effectively, this means you are investing in future holidays for the fixed price paid when you bought the points or shares. Who knows how much holidays will cost in 2010 or 2020?”

Clarke says holiday clubs are not selling points indiscriminately. He says the points and shares sold are monitored by the Timeshare Institute of SA and subject to a biannual audit. This ensures no overselling.

Rioma Cominelli, marketing director of the Club Leisure Group, says the best way for members to benefit from a holiday club is not to phone and ask for a specific resort, week, or even location but rather to indicate when you want to go away and for how long. The holiday consultant can then offer a choice of weeks in a variety of locations and resorts.

Regarding interest rates, Cominelli says the Usury Act protects the public in that interest may never be 8% higher than the ruling prime rate.

“Buyers of timeshare can choose to pay cash or arrange their own finance. A developer carrying the risk of debt is within his rights to charge the legally allowed amount of interest.”

Cominelli admits some clubs have cancelled their undertaking to buy back points from members. She says that if members, or trustees appointed by members of any club, decide at any stage that certain rules that are in place no longer serve the interests of the majority of members, they are entitled to change the rules.

But industry leaders agree that improving the general public’s perception of timeshare products remains a huge challenge.

RCI Southern Africa MD Ivor Clucas says reports reveal that some members have had problems with exchange requests.

“Demand for overseas travel has fallen and that for local exchanges has risen. This affects our ability to meet members’ first choices – hence our rental operation, which aims to offer alternative accommodation as needed.”

Different options and what they cost

THERE are three timeshare options: the purchase of a fixed week in a specific resort, buying points which can be exchanged for accommodation at any timeshare resort, and membership of a timeshare club.

The question is whether it’s better to buy points or a fixed timeshare week at a specific resort. Though 80% of sales are now based on the points system, accommodation in this case is always subject to availability. Another disadvantage is that you usually have to use your accumulated points within two years or you forfeit them.

If you buy into a specific resort, you are at least sure of a place at that resort and you have the option of exchanging it for other accommodation, locally or overseas.

Since few new timeshare resorts have been built in the past few years, most fixed timeshare weeks are traded in the second-hand market. Resales are usually at least 30% cheaper than buying points. But there are transfer costs if you buy second-hand.

Resales advertised in newspapers last week included a week out of season at Ramsgate Beach Club for R1 500, a weekend during the July school holidays at Sun City for R7 500, a week in December in a six-bed unit at Bakubung (North-West) for R35 000 and a week in season at Cabana Beach (Umhlanga) for R4 500.

Bear in mind that annual levies and fees are payable regardless of whether you buy points or a fixed timeshare. Levies vary between R1 000 and R3 500/year. RCI membership fees cost R513 at first, then R350/year. RCI usually charges R350-R400 per booking.

If you want to exchange your local timeshare week or points for overseas accommodation, it will cost you about R1 400/week. But bear in mind that overseas exchanges work on a like-for-like basis. If you bought a one-bedroomed timeshare in a cheap resort out of season in Margate, you can’t expect to exchange it for accommodation in a luxury resort on the French Riviera.