In Hawai'i's real estate market, $250,000 doesn't buy much — maybe a small house in Wai'anae or a condominium in an aging Pearl City high-rise. But in a developing trend, $250,000 now also can buy ownership of a luxury condo or oceanfront home in some of the state's ritziest neighborhoods.

Growing numbers of local real-estate agents have recently begun marketing "fractional ownership" of homes where up to six buyers purchase interests, allowing each one to use the property 60 days a year.

Homes for sale as fractional, or shared, use have emerged partly as a strategy to put Hawai'i vacation homes back within reach of more buyers who have been priced out of the market by the doubling of home values over the past five years.

The concept also is being touted as a new option for homeowners trying to sell their property in a slowing market — possibly for more than a single buyer would pay.

"I'm absolutely certain this is going to be a terrific trend in Hawai'i," said Rick Piva, an agent with Century 21 Aloha Properties who's trying to sell four O'ahu homes as fractionals, including a three-bedroom waterfront cluster home at the Peninsula in Hawai'i Kai for $250,000 per 1/6 interest.

Fractional residences in Hawai'i have a little more history on Kaua'i and mostly exist in resort areas, but lately have cropped up for sale in pricey residential areas from Kane'ohe to Kailua, Kona.

Developers also are getting into the business, buying or building homes and trying to sell them in fractions.

Some concern exists that if the trend becomes hugely popular, it will reduce resident housing inventory and generate more vacation-home demand that could drive up prices in residential neighborhoods.

Yet the practice is largely in its infancy here, and the level of buyer demand for the product in many Hawai'i neighborhoods has yet to be demonstrated.

Brokers are finding that fractionals aren't often understood by buyers, and aren't always welcome in communities, though in part this is because fractional ownership is a widely unfamiliar concept easily confused with time-share.

Fractional homes are similar to traditional time-share that's sold in one-week intervals in that buyers in both cases purchase limited annual use of a property. But unlike most time-shares, fractional owners may use their property however they choose, including personal use, renting it out or sharing it with friends and family.

Fractional owners also must handle maintenance and management of their homes, and often can't easily trade their use period for time at other properties like the time-share industry, which maintains vast networks for swapping time-share use.

Brokers also suggest that fractional homes are more like residential real estate that historically has appreciated, in contrast with time-share.

In a general sense, the concept of fractional home ownership is not new. Families and friends have partnered to buy homes in Hawai'i for decades.

The commercialized version of fractionals has grown heavily in just the past few years nationally, according to industry consultants.

New Jersey firm NorthCourse Leisure Real Estate Solutions identified $1.65 billion in sales last year of fractional vacation homes in the United States, Canada and the Caribbean based on projects with four-week minimum use, or 1/13 ownership.

BREAKOUT YEAR

In a 2005 article in Realtor Magazine Online, Oregon-based market research and consulting firm Ragatz Associates said fractionals had their breakout year in 2004.

Local real estate agents said the fractional home sales industry has been better established in some Mainland resort markets such as Aspen, Colo., and Lake Tahoe, Calif.

In Hawai'i, there have been some fractional home sales, mainly on Kaua'i, over the years. But to date, none have been sold on O'ahu, according to brokers who track sales data.

That seems likely to change soon.

Old Republic Title & Escrow of Hawaii for the past four months or so has been hosting educational seminars on fractionals for hundreds of local real estate agents, lenders, developers and investors statewide.

Laura Merrifield, Old Republic business development director, said the interest and excitement in the real estate community has been tremendously high.

"It's a big thing on the Mainland, and I think it's coming to Hawai'i pretty rapidly," said Frank Wandell, a developer on the Big Island who in late 2005 bought a four-bedroom Kona house to convert for fractional sale.

Wandell listed the property for sale late last year for $189,000 to $269,500 per share, and to date said he has deals for two of the six fractions.

"It's the most sensible way to own a second home," he said, adding that he plans to follow up his first fractional home with several Big Island fractional homes on 1-acre coffee farms.

On O'ahu, local real estate agent and developer Don Eovino built a Kahala Avenue mansion and had the home on the market for about a year, most recently for $12.5 million. Eovino said it normally can take a year or two to sell such a high-end property, but he decided to pursue fractional sales after a banker suggested it.

"Hawai'i is a very strong second-home area," he said. "It doesn't make sense to have a home that you're only going to use one or two months of the year."

Eovino plans to list the property later this week as six fractions from $2.1 million to $2.7 million, or a total of $14.4 million.

Several real estate agents said they view fractionals as a way to sell a home for more than they might as a whole, as well as a way to expand the potential to sell homes in a slowing market.

"It's a way to realize top dollar, and get a little more money," said Nathalie Mullinix, owner of Kailua-based firm Realty Universal Inc. "I think fractionals are a way of the future here."

However, brokers acknowledge that it takes more effort and time to find six buyers agreeing on 60-day use periods. Financing for fractionals also isn't offered by a lot of lenders.

CONFUSION ON LISTINGS

Many brokers also have found that prospective home buyers are often confused about fractional listings.

Denise Drake of Dower Realty Inc. held an open house last week for a fractional home in Kane'ohe, and of the dozen people who attended, only one was interested in the property as a fractional.

"The rest hoped the property was being sold for $325,000 total," Drake said.

Drake said she tried to be clear with the listing, which describes a 2,038-square-foot oceanfront house listed for $325,000 and also says "this property is being sold as 'Fractional.' Price varies depending on what two months you purchase!"

Bryn Kaufman, an agent with Realty Executives who isn't selling fractionals, said he removed most fractional listings from his Web site that taps into O'ahu's listing database because so many prospective buyers mistook the fractional price for a regular price.

"It's catching a lot of unsuspecting buyers with the low price," he said. "They just look at the price and the photos and they're ready to buy."

Much of the problem is that O'ahu's computerized listing system doesn't have a property description field for fractionals like it does for leasehold property.

Mullinix of Realty Universal said she was required to remove a fractional listing for a Ko Olina townhome from the multiple listing service because of its $189,000 list price, but was told by the Honolulu Board of Realtors, which operates the listing service, that there are plans to better accommodate fractionals in the system.

Still, it may take a while for brokers, buyers and sellers to better understand fractionals, which are being described and marketed with little consistency. For instance, some fractionals on the market are sold with fixed time periods. Other fractional listings leave it to buyers to arrange use times.

Fractionals also have been given a cloudy meaning by some luxury time-share projects that feature 21-day use intervals, often with deeds, that developers tout as fractionals and not time-share.

The American Resort Development Association defines fractionals as typically giving an owner between 42 and 91 days of annual use, or roughly 1/8 to 1/4 shares.

Under Hawai'i law, any property sold for occupancy less than 60 consecutive days is considered a time-share, which is prohibited from most residential-zoned areas.

Fractional owners of homes in residential neighborhoods are subject to zoning laws that prohibit renting the property out for less than 30 days. But there is some concern that fractionals may be used by investors as illegal short-term vacation rentals to earn high income from the property if they don't use it.

That's a concern for David Bramlett, a North Shore resident who chafes at illegal vacation rentals that he said ruin the fabric of residential neighborhoods. But if fractional buyers bought an oceanfront house across from his, he said he wouldn't mind.

Brokers said some communities attempt to exclude fractionals through homeowner association bylaws, while others have expressed displeasure at fractionals being sold in their neighborhoods.

Piva of Century 21 Aloha Properties said opposition from community associations is largely from the mistaken belief that fractionals are time-shares.

"We're going through this learning curve now," he said. "Technically (fractionals are more geared) for resort properties, but what do you call Hawai'i? I really think (fractionals are) the wave of the future ... $100,000 can get you something quite nice in a fraction."

Randall Harris, a California management consulting professional who's regularly vacationed in Hawai'i for a decade, said economics should force Hawai'i's vacation-home market to move more into fractionals.

"As the price of resort homes goes up, whole ownership makes less and less sense unless you're going to spend a lot of time in the home," he said. "A lot of second-home buyers are questioning — a) can I afford it, and b) does it make sense for me to own the whole thing?"

Reach Andrew Gomes at agomes@honoluluadvertiser.com.