11 March, 2021
Luxury assets, such as private jets and real estate, are known to be highly expensive to purchase as well as maintain, making them out of reach for the majority of people. Yet, what if there were a way to buy just a slice of luxury without having to worry about logistics or maintenance? It would appear that many bought into this idea during the pandemic, as the model of fractional ownership, which offers precisely this, surged in popularity. In this article, we explore how fractional ownership has grown during the pandemic and why it is increasingly becoming the most attractive investment option.
Having originally gained popularity in the form of vacation timeshares, the fractional ownership model has challenged the traditional concept of asset ownership. Whereas it was previously widely accepted that you would either own something in full or arrange some sort of loan agreement, this new business model allows for multiple parties to share in the ownership and risk of a high-value asset.
Fractional ownership isn’t something new and has been available for a wide range of asset classes, including art (which is already available offline, and soon online, through LTArt - contact us for more details), cars, racehorses and more. The same holds true for cryptocurrency, where investors can now, if we take the example of Bitcoin, purchase a certain percentage of a Bitcoin rather than one in full. Overall, it has allowed people to invest in various equities without being held back by capital limitations, rendering its popularity unsurprising. But why has it boomed during the pandemic?
There are many different possible reasons as to why interest in fractional ownership jumped during the pandemic. One reason is that the ‘apparent disconnect between the equity markets and underlying economic reality’ (quoted from EuropeanCEO) has made people wary of the stock market and caused them to look to diversify their investment portfolios. Another possible reason is that, due to the lockdowns, people are spending less money on travel, dining out and other pleasures, and as such, are looking for another place to invest their money in. Finally, the last reason could be that with less time spent commuting, people find themselves with more time on their hands and the ability to pursue other passions, such as fine art and vintage cars. Fractional ownership has given them a way to make their passions a reality and participate in those markets.
‘Folks are stuck in the house, bored, and, if they’re lucky enough to be working, aren’t spending money on things they normally would. So, they have money to play with.’ - David Ritter, Bloomberg Intelligence analyst, as quoted in the Business Standard.
One success story has been one-year-old firm Otis, which predominantly offers collectibles, such as sneakers and comic books. According to its founder, Michael Karnjanaprakorn, 20 of its 35 pieces were purchased since March 2020, with the most expensive offering being at $425,000 for a Banksy painting (as reported by the Business Standard). Similarly, Acquicent, which offers co-ownership of classic cars and was founded in 2019, saw an 80% increase in the number of potential investors between June and September last year (as reported by The National).
The shift to remote working has also led younger generations to explore the realms of online trading for the first time. This is key, as millennials (those under 34) appear to be the most active participants in online fractional art ownership, especially as they are more active in the online space. According to the Hiscox Online Art Trade Report 2020, the Covid-19 pandemic has rapidly increased online sales, mostly with the lower age segments. It was reported that 82% of new art collectors, who had been collecting for fewer than three years, bought artworks online between March and September 2020. Similarly, around 69% of millennial art enthusiasts said they’d bought art online during that same period, up 40% since 2019.
Source: Hiscox Online Trade Report 2020, Part Two
Interestingly, when asked what motivated art buyers to purchase art during the pandemic, the majority cited emotional benefits or an individual passion for art, followed by supporting the art community during this challenging time. Identity and status also seemed more important to millennial buyers. It would appear that this is the true advantage of online accessibility to art, and indeed, fractional ownership: it allows people to participate in their passions and broader society, which in turn, helps them further establish their identity within their communities.
Source: Hiscox Online Trade Report 2020, Part Two
To conclude, while fractional ownership may be easily accessible, as with any form of investment, it doesn’t come without risk. However, for those dreaming of owning a yacht, Picasso or Aston Martin, it may be well worth the risk. It has allowed for the ownership of luxury items to not only be reserved to the ultra-rich and removed some of the logistical and maintenance hassles that come with owning luxury items. Now, the question is whether its growing popularity during the pandemic is indicative of the growth of the sharing economy? One thing is for sure, it points to a positive, much-needed democratisation in the investment world.
Charlotte Gifford, ‘The rise of fractional ownership in luxury assets’, EuropeanCEO, Sep 2020, https://www.europeanceo.com/home/featured/the-rise-of-fractional-ownership-in-luxury-assets/
Hiscox Online Trade Report 2020, https://www.hiscox.co.uk/online-art-trade-report
Katya Kazakina, ‘This art investment startup is luring scores of investors in the pandemic’, Business Standard, Sep 2020, https://www.business-standard.com/article/international/this-art-investment-startup-is-luring-scores-of-investors-in-the-pandemic-120090600162_1.html
Mark Hall, ‘Fractional Ownership: A Trendy Business Model That Might Be Having A Moment’, Forbes, Jul 2020, https://www.forbes.com/sites/markhall/2020/07/09/fractional-ownership/?sh=2cd4f8915ad3
The National, ‘Fractional ownership in luxury assets surges amid pandemic’, Sep 2020, https://www.thenationalnews.com/business/money/fractional-ownership-in-luxury-assets-surges-amid-pandemic-1.1075288