Are holiday properties just assets for cash flow?

The holiday property market has shifted significantly over the last ten years. Income returns are at the forefront of the owner’s minds, and most clients now purchase with the plan to rent their homes from the outset. Smaller and higher-yielding properties are in demand as a result expanding the lower part of the market.

Possibly the most important change has come with the rise of the sharing economy and progress in mobile technology. This has streamlined the rental process, further fuelling demand for holiday rentals. The expectations of the tourists, more demanding than ever, have risen as a result. The way people are spending their holidays is changing too. The availability of outdoor activities such as hiking, electronic biking and water sports are an important consideration for renters, particularly younger ones. More people are travelling with their pets, accommodating them is becoming a key differentiator for the short stay sector.

Future property owners pay special consideration to the potential rental return of that chosen ski property. They tend to see that property more as an asset, there to generate cash flow than just a home to enjoy. Still, the lifestyle aspect is an important part of the choice process when buying a ski property. These clients usually love the mountain not just the real estate potential.

Worldwide though, real estate purchase is seen more and more as an investment to generate cash flow. Almost half of the people buying a holiday home in 2019 did so with the intention of renting it out on a short-term basis from the start. This has overtaken using their property only for themselves and family/friends as the main reason for purchase.

Intended use of the property at purchase

Half of the owners surveyed now intend to let their properties straight away. This trend has gone hand in hand with an expansion of the lower-priced part of the property market. House prices rose steadily across most global markets up until the 2009 financial crisis, with higher-priced properties becoming ever more popular.

Half of the owners now intend to let their properties from the outset. In 2007 a quarter of all properties purchased (based on our survey sample) cost above $500,000. But by 2019, purchases in that price bracket had dropped to 22%. The lower price tiers (most notably the $100,000 to $299,999 segment) have expanded, accounting for 44% of all purchases in 2019 as buyers turned to smaller, easier to manage and higher-yielding properties.

With French ski properties, the trend has been somewhat different as historically there has been an oversupply in French Alps of small surfaces like studios and 1-beds; therefore, bigger properties with three bedrooms plus have been in high demand. This trend is starting to shift slightly as new developments tend to have more 3-bed plus ski properties nowadays. They still sell often more quickly than the smaller 1-beds.

Of course, some of the countries can have different trends sometimes due to the property market increasing enormously or the other way too. Purchasers in Portugal have moved into higher price tiers as that market has seen prices rise by 32% in the last three years. The dominant price point here is $100,000 to $299,999, but properties over $500,000 made up 17% of all purchases in the last three years, up from 7% the three years prior.

At the other end of the spectrum, in Brazil purchases under the value of $100,000 now predominate, accounting for 65% of all purchases in the last three years, compared to 29% between 2014-16.

The new short-let market.

The short-let real estate market is pushed by the tourist industry, which is ever-expanding. Globally, international tourist arrivals increased by 4% in the first half of 2019, compared to the same period in 2018, led by the Middle East (+8%), Asia Pacific (+6%) and Europe (+4%).

Chinese outbound tourism continues to drive growth in arrivals (+14% in trips abroad), in spite of trade tensions and a slight depreciation in the yuan. Outbound travel from the US remained solid (+7%), benefitting the Caribbean in particular, which saw an increase in arrivals of 11% compared to the same period in 2018.

The cultural and technological shift is having an impact too. The growth of the sharing economy and advances in mobile technology have fed demand for holiday rentals and made the entire process simpler than ever before. Services such as HomeAway and Airbnb have enabled this transformation, providing a deeper pool of renters to owners.

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