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Timeshare holidays? Be careful!
Nikhil Menon and Anagh Pal, Outlook Money | December 27, 2007
IIT-Kanpur assistant professor Amitabha Bandyopadhyay reacted with cautious optimism to the phone-call that announced that his wife, Jonaki Sen, and he had been selected for a free two-night family vacation.
To claim it, they were asked to visit a mall-based office, where a Club Mahindra franchisee met them and began hard-selling the concept of an inflation-free holiday.
Having lived in the United States for 12 years, Bandyopadhyay recognised the product for what it was, though the term was never mentioned: time-share vacation. He asked to see the rulebook (codifying the terms and conditions), but was told there was no copy available.
Simultaneously, he was urged to sign up quickly or risk missing the bus. Bandyopadhyay complied, paying Rs 35,000 upfront as part of the timeshare fees as the franchisee scribbled down the deliverables. The next day, he handed over Rs 87,000 by cheque to complete the first instalment of payment.
Going through the rulebook that arrived a month later, he discovered that contrary to what he was told, room availability was not guaranteed, nor were the airport pick-ups and drops free of charge, among other things. He called up the franchisee to complain and even filed a complaint with Club Mahindra, but to no avail.
Finally, Bandyopadhyay met a lawyer and decided to file a criminal case. The franchisee and a Club Mahindra marketing manager met him and assured him of a full refund. Four months later, the money came through. Bandyopadhyay now counts himself among the lucky ones who got away.
Vacation ownership is touted as a great way to ensure an annual five-star holiday at an inflation-insulated price. The sales pitch is appealing: you and your family can enjoy a rent-free holiday at a domestic destination of your choice or a foreign holiday at a heavily subsidised rate. You can see the sights, explore idyllic locales, participate in adventure sports and have the time of your life.
But, as with any buying decision, it's in your interest as a consumer to investigate the deal, weigh the pros and cons, and make an informed decision.
How timeshare works
Vacation ownership operates on the timeshare principle. If you sign up for a basic timeshare holiday, you block one week in a year at a resort in a holiday destination. So, if there's a resort in Panchmarhi that offers timeshare holidays, you can invest money in buying a week there every summer for a certain number of years.
A week at one location becomes a unit that can be split, exchanged for a week in another resort, transferred and (ideally) bought and sold. Since there are only 52 weeks in the year, a resort can have a maximum of 52 members (though most cap it at 50, keeping aside two weeks for maintenance).
The memberships are long-term -- usually for 15 or 25 years -- and members pay annual fees towards maintenance charges like upkeep of property, utilities or staff salaries.
With multi-location developers like Club Mahindra, your week is the currency that you use every year to take your holiday at the resort of your choice.
The amount you pay depends on the location, the time you choose and the size of the accommodation. There are three main 'size' choices: small or compact units, medium-size units and large units.
The periods are ranked likewise: peak holiday weeks (marked in red in the timeshare calendar), less-than-ideal times (white) and off-season (blue). So, a compact unit in Goa during a 'white' week will cost much less than a two-bedroom large unit in the same resort in summer or over New Year.
While serious timeshare promoters have multiple resorts in India, it is both difficult and expensive to set up resorts in foreign locations. Most tie up with Resort Condominium International (RCI), a holiday ownership exchange company with 3,700 affiliate resorts across 95 countries.
RCI works like a bank where you deposit your domestic week in exchange for a week in an affiliated foreign resort -- subject to availability and depending on the 'trading power' of the week you own.
Therefore, if you own a peak season week in a popular destination, you are more likely to be able to exchange it for the foreign holiday you want than if you owned a 'blue' week in a not-so-hot location.
Though the vacation ownership industry is well established in the West, it has taken time to catch on in India. Economic growth and rising affluence, however, has helped of late.
B.S. Rathor, chairman of the All India Resort Development Association (AIRDA), a body of timeshare resort developers, puts the industry's compounded annual growth at around 20 per cent. AIRDA has among its members Mahindra Holidays and Resorts, Avalon Resorts, Orange County and Lotus Suites.
The blunder years. When it first arrived on Indian shores, timeshare resorts quickly acquired a bad name because of a few companies of dubious repute. Experiences like Khushroo Khambatta's were common.
In 1995, Khambatta, now 76, bought a 99-year membership at the Royal Goan Beach Club (RGBC). After a smooth start, he and his wife got a shock when they saw the maintenance fees rising astronomically every year. "When I asked for an explanation, I was told that the earlier rules had been amended during an annual general body meeting in Indonesia, which we weren't even informed about," says Khambatta.
"At the same time, we saw the white and blue sections being slashed as more and more weeks were given over to the red season. From 70 per cent blue and white weeks in 1995, the cumulative percentage reduced to 30 per cent in 1999." Members were given the option of switching to a red week, at a price. But, Khambatta says this is unfair for existing members.
Rathor says, "Earlier, timeshare was seen as a money-making business. The quality of service was frequently inadequate. However, I think those days are behind us. Today, we insist that AIRDA members follow our stringent code of ethics."
The AIRDA, for example, has made it mandatory for its members do away with utility fees -- charges levied on electricity, water and other amenities -- and offer a 10-day cooling-off period, during which a customer may ask for a full refund (minus cancellation charges).
Things have also improved, in part, since the late-2003 National Consumer Disputes Redressal Commission ruling that consumer courts could henceforth hear complaints against timeshare resorts.
Is it for you?
Many people think a part-share in a resort is a good idea. Among them is Mumbai businessman R.K. Dharia. He became a Club Mahindra lifetime (25 years) member in 2003 on a friend's recommendation and has been on three vacations so far with them, in Goa, Coorg and Scotland (through RCI).
"I went for Club Mahindra because of their reputation," says Dharia. "I am fully satisfied with the quality of service. My experience has led me to believe that a timeshare vacation is a good product for any middle-class family," he says.
Do the math
A 25-year lifetime membership with Club Mahindra for a studio apartment taken in the 'white' (non-peak) season costs about Rs 1.94 lakh (Rs 194,000). Add to this the company's annual subscription fee (Rs 7,038 at current rates) and you'll find yourself paying around Rs 14,800 as the weekly rent for stay at a five-star-grade hotel, or Rs 2,100 per day for two adults and two children.
This is about one-fifth of regular five-star rates. Mahindra and other resort developers are also offering interest-free EMI facilities for up to two years to appeal to the upper middle-class buyer.
Annual fees, which cover upkeep, are part of the deal. "A maintenance fee is natural, since you own the property and are responsible for its upkeep. Maintenance fees may increase at 3-5 per cent each year," says Sushil Jhaveri, managing director, Treasure Island Resorts.
The maximum limit is fixed by the developer. However, do find out how the maintenance fee is fixed by the company. The process should be transparent. Club Mahindra, for example, has indexed itself to the Urban Non-manual Consumer Price Index as published by the Reserve Bank of India [Get Quote].
"This ensures that the charges in the annual fee are governed by a recognised and respected independent authority and are not arbitrary," says Aniruddha Haldar, head (marketing), Club Mahindra.
It also pays not to scrimp on the initial outlay, especially if you plan to exchange your weeks often. "If you can, go in for a peak season membership at a good location, since this boosts your week trading power," says Radhika Shastry, general manager of RCI (India Operations). "Eighty five per cent of customers buy timeshare for the trading facility," she says.
The exchange fees are fixed -- Rs 12,000 for long-haul international holiday exchanges (like Europe or the US) and Rs 8,500 for short-haul exchanges (within Asia). You can exchange a peak season two-bedroom apartment in a good location in India for a studio apartment somewhere abroad. Domestic exchanges (exchanging a week at your resort for a week at another affiliated resort) cost Rs 5,500.
Before investing, ask yourself:
Before you sign up