07 December, 2011

Planning Holidays – How viable are club memberships?

Holidays for most people used to be a trip to hometown and back, twenty years back. But, that was then. These days, trips to hometown, do not count as holidays. Holidays are separately planned, often to far-off and exotic locations. That can cost quite a packet, as we can attest as Financial Planners, being privy to what our clients spend on their vacations.

The spends can range from Rs.25,000 to several lakhs of rupees. This means that, for some of them, this is a major expenditure item in a year and careful planning needs to be done. 

This is where time share resorts come in. RCI, Mahindra Holidays, Country Club, Sterling Holidays are some of the popular ones.  The concept in a timeshare is that one can avail of a holiday, for seven days in a year ( normal scenario ), in one of the many locations of the service provider, for a specified period, like, say, 25 years. For that, one needs to pay a certain sum of money in advance, say Rs.3.5 Lakhs. This money is either paid in a lump-sum or as part lump-sums & part EMIs. Apart from this, one also needs to pay an annual maintenance fee, which may be Rs.7,000 – Rs.20,000 pa. 

So, is that cost effective? The answer is not straight forward. These club memberships are not cheap, for sure.  The main reason why many want to go for such memberships is 1. Hassle free holidays – the rooms and the resort are good  2. Once there is a club membership, one may take a good holiday every year, instead of skipping it 3. Peer pressure & keeping up with the Sharmas. 

Now, everything depends on the kind of resort, facilities and services available.  Some of the resorts do have excellent facilities and the experience is entirely positive.  In some other cases, the experience is not so good and one feels cheated. Many of the resorts claim to offer five star quality rooms. My personal experience is that the rooms are pretty good, but the claim that they are five star quality, is a stretch. But, over all it had been good. Again my personal experience with another service provider was substandard. The room was OK; but the resort was like a housing colony in Mumbai. I definitely felt cheated. 

So, that’s the problem. The quality of the resorts & the rooms may not be uniform, especially for a provider like RCI, who depends on various resorts coming under it’s banner. Ofcourse, one can pick and choose and go to specific resorts, based on the feedback one has received from others who have used & hope for the best. But, that beats the purpose of choosing a club membership, which was for hassle-free holidays.

From a purely financial standpoint too, it is not a easy decision to make. Again, the cost is high or low depending on various factors – what kind of accommodation would you normally stay in and what you would pay, your willingness to evaluate various potential resort options each time you want to go for a holiday and other factors. If you want a uniformly good experience, you are better off with a good club / resorts chain, where you are confident of the resort and room quality and you would want a hassle free holiday. In this case, one would pay about Rs.44,000/- (Rs.35,000/- interest on the amount paid + about Rs.9,000/- as Annual maintenance charges , based on the example ), which works out to  Rs.6,285 per day for the people covered. That is not exactly cheap. Also, the amount paid does not come back to you, which adds to the cost too. 

There are alternatives available from various other travel agencies these days, which could give very competitive options. For those who do not commit for the very longterm, one can take advantage of the offers available. This ofcourse means more homework before zeroing on the holiday, but there is the benefit of not paying a huge sum upfront and the choice of going to any destination of one’s choice, over the years, instead of restricting to what the club/ resort chain has on offer.  It could also be cheaper.

On the whole, Club/ resort chain option would be a great idea for those who want to go on a holiday year-on-year, want hassle free holidays in quality resorts.  The downside is that the price can be  high, they get stuck to that chain, the holidays can be accumulated only till a point, after which it will lapse. Also, this is a very long term commitment that they are making and there is an inherent risk in it. In the other option, the advantage is that you don’t have to commit for the longterm, you are not chained to the resorts available with the club and your holidays may be of much lower cost. The downside here is that you may have to spend time & effort evaluating options for holidays each time, the experience will be good sometimes and not so at others.  

Choose the one that suits you best, based on what you are actually looking for.

Article by Suresh Sadagopan ; Published in Financial Chronicle on 17/11/2011

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