By Chris Jackson
With developers already starting to break ground, all eyes are on the Dubai government for legislation to regulate the timeshare industry, as Chris Jackson reports.
With developers already starting to break ground, all eyes are on the Dubai government for legislation to regulate the timeshare industry, as Chris Jacksonrepo rts.
Globally timeshare is big business, with industry estimates of US $13 billion annually in timeshare and as much as $2 billion in fractional ownership.
We have been talking about legislation for three or four years, but I think the market is ready.
Currently, Dubai does not have any legislation to regulate the industry, which has been marred in the past in other destinations by over-promising salespeople and under-delivering developers.
However as Interval International managing director David Clifton and RCI Global Middle East managing director Nick Turner point out, introducing appropriate legislation before the industry begins will ensure that all major stakeholders - consumers, developers, the government and ultimately the destination - will benefit.
Time is the key
According to Clifton, whose company has been involved with the preparation of the legislation, the law is not far off.
"We truly think that it will be here before too long," he says.
"The government is really focussing on this, and there is a significant amount of attention from the industry, and the intention is to wrap it up as quickly as possible. The government is working on a lot of difficult issues trying to get legislative platforms together, not just on timeshare but on a number of different industries.There are a couple of things for them to manage - how this fits into condominium law and strata law, and a variety of different things.
RCI has already made several announcements for timeshare projects in 2008, Turner says.
"At RCI we probably have around seven projects ready to go," he adds.
"There are developers who are ready now - they have the projects, they have the configurations, they know which markets they are going to be selling to, they have worked with our RCI team in terms of defining the brand and their proposition and so on, and they are looking to start selling in Q2.
"Therefore, an awful lot has to happen in the next couple of weeks for these significant projects to move into sales mode.
Some developers have already applied for licenses and letters of no-objection, Turner says.
"I think we have been talking about legislation for three or four years, but I think the market is ready and the maturity of the real estate market is probably the most important factor in being the right time for alternative leisure real estate - such as fractions and timeshare - to start selling.
The case for sharing
Keeping in mind the push by the Dubai government to dramatically increase its tourism reach, allowing timeshare development will boost visitor numbers and average length of stays, Turner says.
"Last year RCI brought in a million people to Orlando and Florida," he explains. "This a sizeable opportunity for the Dubai tourism machine to open up new market segments. It is not going to be a million people overnight, because that [Orlando] is a mature market, but that is potentially where Dubai could be setting itself, as a goal for transactions through timeshare and vacation exchange.
Clifton agrees that demand for Dubai as a destination is strong from both consumers and developers.
"Ultimately there is a significant demand for licenses to move forward in the business - you will see major international players coming in as well as regional players - and we continue to be quite optimistic that this area is going to be a significant market going forward," he adds.
"Some of the big projects that have been announced are groups like Aqua Dunya, that are going to do 755 timeshare units. Now the industry will go from being a lot of interest to a lot of action - and it will happen very quickly.
The scope of the market is not limited to existing demand, Turner is quick to point out.
"For every company that has made their decision to enter the timeshare market in Dubai, there are five or six that are waiting for legislation," he says.
"There is a long line of developers that are ready, and interested, but are waiting to be shown a piece of paper to say that it is legal and they will enter the market.
"Our focus is very much on developing the industry, bringing in more developers and hoteliers to the market, who have traditionally operated hotels and traditional real estate projects.
Developers were interested in fractional products, and the buy-to-use-and-let market - where a holiday home or apartment is purchased on a theme park as a holiday home, and the keys are handed back to an operator or management company to be rented out when not in use.
RCI's Turner says the company is focussing on three main models.
"[We are focusing on] timeshare vacation ownership, luxury fractionals and the buy-to-use-and-let model," he elaborates.
"Through our Northcourse research, the potential market value from the Middle East consumers alone will be $600 million per year by 2020 in fractions, and $500 million in timeshare. So we are looking at a $1.2 billion per year opportunity for hoteliers and developers in this part of the world. That is purely for consumers from Saudi Arabia, UAE, Kuwait, Iran and Egypt.
Turner and Clifton agree that demand for timeshare and fractional asset products are spread between local, regional and international companies.
"It is a highly profitable business if done correctly, it is far more resilient than traditional hotels in times of trouble, you have the opportunity to marry yourself to a client for literally generations, and ultimately it has tremendous natural synergies with the conventional hotel business," Clifton explains.
"It won't just be hoteliers who are successful in this business, independents will be hugely successful. A lot of big international players will wait and let others develop the market. [Internationally] Starwood and Marriott both brought existing local companies, and let them get the infrastructure in place and teams in place.
"I think you will see that independents will come in very strongly to begin with, then you will have some international players. Within five years you will have most of the big international brands here, in a big way, with their timeshare and vacation ownership products.
Turner confirms that there is a large amount of interest from regional hotel operators.
"The reality is that the regional players are aware there will be 50,000 extra rooms here in Dubai in the next five years, and they want some predictability," he says.
"If you pay $25,000 for a right to use a room for the next 10 years, then you have effectively guaranteed that room's revenue for that same period, and they like the predictability that offers.
"We predict supply will outpace hotel demand by Q3 this year, therefore occupancy will soften. Hoteliers will be able to afford to handover 10% to 15% of their inventory to top up their occupancy yields.
Regional companies would soon offer timeshare products as a way to meet the demands of developers, as well as consumers, Clifton argues.
"Just as international companies realised some time ago, regional management companies know that developers who build and own these hotels are ultimately looking for ways to spread the risk," he explains.
"If a regional company wants to build their management business, if they do not embrace the concept of vacation ownership then their chances of getting more contracts is going to be zero to none. There are a lot of companies that have come into vacation ownership not just because of the profitability, but also because it is a competitive requirement and a necessity to grow your core business.
But hoteliers need not fear that timeshare will replace their business, he points out.
"Vacation ownership will never replace hotels, but it is such a natural synergy. It benefits the hoteliers, the developers and the community - all the stakeholders," Clifton says.
Globally, hoteliers were becoming more comfortable with their role in the industry, Turner says, adding that several years ago many hoteliers were not sure of what timeshare was, and how it would impact their operations.
"The answer is that it doesn't replace your business, but it becomes a key market segment of your room revenue," he explains.
"The beauty of this business is that you use the same check-in desk, the same swimming pools, the same operational infrastructure, and you get incremental revenue from the people that dine in your restaurants. Synergy is the key from an operational perspective, along with guaranteed room rates for the next 10 years.
Timeshare: not a dirty word
While conceding that the local market still needs more education on the various timeshare products available, Turner and Clifton agree that the industry also needs to accept the term "timeshare" - and that with the right developers and operators the industry will quickly overcome the pejorative historical associations of the word.
"When you look at the definitions, and the differences between fractionals and timeshare and private residence clubs, at the end of the day you're taking a use right to a particular accommodation, dividing it into increments of time, and then selling it for the next 10 to 30 years," Clifton says.
"I am amazed at how many people don't want to talk about timeshare, but they want to talk about fractionals. If it walks like a duck, talks like a duck, it probably is a duck - there are always these debates about what it should be called.
Turner agrees it will be up to the pioneers of the industry in Dubai to ensure its success.
If you have a good product, great sales people and good customer service, you don't necessarily have to lock people in a room and give them a toaster after eight hours," he says. "I think this industry is going to grow through quality, rather than through pushy sales techniques."
Global players such as Hilton, Starwood and Marriott wouldn't be prepared to risk their brand equity on low quality projects, Clifton says.
"If you look at Marriott and Starwood for example, in 2006 Marriott did $1.8 billion of sales in timeshares and fractionals and 50% of their sales came from existing owners or their families and friends," he explains.
"Starwood did a billion dollars, and again 50% of those came from people buying more. It shows the magnitude of interest in these products - it is here to stay, it's mainstream.
Turner says the level of international interest in the region is not what he expected.
"What surprises me is the number of North American companies - development companies and investment companies - that are now interested in looking at this part of the world, particularly Dubai, to have their first investment in the Middle East," he says.
Time for change
Although the focus is on legislation in Dubai, further timeshare developments are likely to spread further throughout the region.
"Timeshare and vacation ownership is not a new phenomenon in this part of the world - at last count there were 97 or 96 resorts across the Middle East that have timeshare," Turner says.
"But the driving force is going to be Dubai - I think that the world is looking at this region thanks to Dubai.
RCI currently has projects in Muscat, Abu Dhabi, Ras Al Khaimah, Fujairah, Manama and Doha, Turner adds.
"A lot of destinations talk about overtaking Dubai, but Dubai has a huge head start, taking nothing away from what places like Abu Dhabi and Bahrain, Qatar and Bahrain have achieved," Clifton says. "It is only natural that vacation ownership will boom in those areas, but the engine is really going to be Dubai.
It is for this reason that the two companies are keen to see the new law.
"One of the greatest risks is further delay in releasing this legislation," Turner says. "My concern is more about the unregulated independents that may darken the name of timeshare, as they have done in places like Tenerife in the past.
Clifton agrees that the lack of legislation is limiting the industry's growth.
"Ultimately consumers are getting more sophisticated," he says. "The whole point of the legislation is to protect the consumers' rights but allow the legitimate businesses to grow. If you don't have a good balanced legislative platform ultimately you can have a few bad apples resort to aggressive sales tactics and destroy the industry.
That makes no sense, and that is why we applaud the government of Dubai for recognising that early on and creating a platform that is truly protective over the various stakeholders.
The need to ensure the early development of the market is quality-focused will create human capital issues, similar to those affecting the hospitality industry today, Turner says.
"One of the challenges we face - as the hotel industry did as well - is finding good quality individuals to groom and coach to develop the sector," he explains. "We need good sales people, good marketing people. That is an issue that also impacts on the timeshare industry as well.
Until the legislation is approved, both companies are ensuring the market is kept informed about the potential of the timeshare industry through their conferences and symposiums.
Interval International will be holding their Vacation Ownership Investment Conference in Dubai this month (see below), while RCI will be holding a symposium in the third quarter.
"Between the two exchange companies we are creating and educating an industry," Turner says."In the past we have probably been accused of being too Dubai-centric, and in addition to our real estate symposium we will be hitting the road to Bahrain, Qatar, and Riyadh.
"This entire region is going to benefit from this model, and we can't forget destinations other than Dubai.