With summer holidays round the corner, are you thinking of buying a time-share? Sure, the concept looks quite alluring — pay upfront and get a lifetime of low-priced vacations at tony resorts. But before you sign a cheque, take some time out and assess the pros and cons.

Cheap over long term

Time-shares, also known as vacation ownership, offer the right to use a resort unit at different locations for a specific period (say, one week) each year for a specified number of years (say, 25 years). The apparent cost: a one-time membership charge and annual maintenance fees. By paying an exchange fee, time-share owners could also opt to stay in resorts of other vacation ownership companies in India or abroad too.

If used consistently on a long-term basis, time-shares could work out cheaper than comparable cosy hotel rooms.

For instance, our enquiries suggest that the minimum daily room tariff for non-members at the resorts of Club Mahindra and Sterling Holidays, the leading time-share companies in India, is Rs 5,000. On its time-share plans, Club Mahindra’s current membership charge for the basic offering (one week every year at its studio apartment in the off-season for 25 years) is Rs 1,99,999 and annual subscription fee is around Rs 10,750.

For a similar package, Sterling Holidays charges Rs 1,54,350 as membership and its annual subscription fee works out to around Rs 3,300.

Assume room tariff and annual subscription fee increase by a modest 5 per cent annually.

A non-member will end up spending Rs 16.7 lakh if he takes one-week vacations for 25 years. The membership charge and annual fees for a time-share member add up to a much lower Rs 7.1 lakh in Club Mahindra and Rs 3.1 lakh in Sterling Holidays.

If that looks like an open-and-shut case, hold on. Sure, vacation ownership may work out easier on your wallet in the long run. Yet, it may not be suited for all. First, consider whether the time-share model fits your idea of a vacation. If you prefer being on the move while on holiday, a time-share with its ‘home away from home’ philosophy may not be for you.

Also, time-shares, while economical in comparison with similar hotel rooms, entail large upfront payments. The membership charge could range from Rs 1.5 lakh to upwards of Rs 15 lakh depending on choice of accommodation (studio, single-bedroom or two-bedroom) and season (super-peak, peak, mid-peak and off-season). The bigger the accommodation and more in demand the season, the higher the cost.

Also, you need to pay annual maintenance charge irrespective of your usage of the time-share. Time-shares work best if you know today, that you will likely take a holiday every year over the next 25 years. But unpredictable schedules or economic uncertainties could come in the way of planning annual vacations.

Also, take note of the following before signing on.

Not life-long : In most cases, vacation ownership is a right to use the property and not an outright sale. So, at the end of the contract period (say, 25 years), your entitlement to use the resort expires. The company may either offer you a chance to pay afresh and extend the membership, or may place it back on the market. Check out what happens after the tenure.

Not fully inflation-proof : The annual maintenance charges levied by time-share companies will likely increase every year to keep pace with inflation. For instance, Club Mahindra’s annual subscription fee for studio apartments has gone up from around Rs 7,408 in 2008 to Rs 10,748 in 2012 — a 45 per cent rise in four years. The company revises the cost based on government published inflation indices. Time-share companies may not allow you to use the resorts or may cancel your membership if you default in paying the annual charges.

Total Cost of Ownership : Besides membership charge and annual maintenance, you will have to pay extra for food at the resort. Club Mahindra currently charges its members Rs 1,000 per head daily, while Sterling Holidays charges Rs 600. This cost will also likely increase with time. Transport is an additional expense. Besides, exchange arrangements with RCI, a leading global time-share exchange network, for stay at its affiliated resorts in India or abroad could cost between Rs 7,000 and Rs 15,000 per transaction. Renewal of RCI membership after the complimentary period of two years will also entail an expense — between Rs 2,500 for one year and Rs 19,000 for 10 years. If you take a loan to pay for the time-share membership, you will be charged interest at rates up to 16-18 per cent annually. The longer the loan tenure, the more delayed is your holiday start date.

Flexibility or lack of it

Check whether you can rent, gift and transfer your time-share, and the costs involved. Club Mahindra and Sterling Holidays charge Rs 1,000 for renting or gifting a week (except to immediate family members). Transferring (selling) a time-share involves a charge of around Rs 3,000.

Prospective buyers can also consider resold time-shares if available cheap. But they should take into account the remaining tenure on the time-share and costs associated with buying in the secondary market. Bequeathing a time-share permanently to legal heirs will not be possible if it is in the nature of right to use.

For those keen to take pets along to vacations, there may be bad news. Resorts may not allow pets.

Accumulate, Advance

Vacation ownership schemes usually allow you to use all the seven days at one stretch or to split your weekly vacation entitlement into shorter vacations, say, of two days or more. You are also usually allowed to accumulate your entitlement in case you are not able to go on vacation in a particular year. But note that such accumulation may be limited to two or three weeks. This you can use in the coming years for longer holidays. In case you have only one week but want a longer vacation, you can consider advancing the next year’s weekly entitlement. But you may have to pay the annual maintenance for the next year also in advance.

Upgrading

If you have a lower category of time-share, say, a studio apartment in the off-season, you are allowed to opt for a resort room in higher categories, subject to availability. In such cases, your entitlement of one week that year will reduce to four or five days. Check whether the time-share company offers these flexibilities and enquire about restrictions, if any. Also, enquire about the rules and modalities regarding exchange/swap of your time-share with other vacation ownership companies.

Availability factor

You may not able to take a vacation using your time-share if resort rooms are not available. Not being able to avail yourself of a vacation can be quite disappointing, especially since you will have to continue paying the annual maintenance fee regardless. This situation could arise if the time-share company adds many new members but does not increase the number of resort rooms adequately. Check whether the pace of room addition by the time-share company has been healthy in the past and make enquiries about its future expansion plans. A large number of rooms allocated for non-members could also cause a problem of lack of rooms for members.

Also, enquire about the cancellation policy. Not cancelling bookings before a certain period could cost you some or all of your entitlement for the year.

It is not a good idea to book with a time-share company whose resorts are under construction.

Double-check

Negotiate for special offers before signing in. Be sure about what you are entering into, ensure that all you have been promised is put on paper, and don’t decide in a hurry. Good time-share companies allow customers a reasonable cooling off period within which you can choose to back out with full refund.

> anand.k@thehindu.co.in

Related Topics
comment COMMENT NOW