A million dollars is what some HDB flats cost, but it can also buy you a beachfront property in Spain.
Luxury holiday homes in countries like Spain and Italy are becoming more popular with Asian buyers due to lower prices and a more favourable investment climate. We investigate.
By Romesh Navaratnarajah
Thousands of Singaporeans are set to travel overseas to take advantage of the school holidays, which have just started. While many will choose to stay in hotels or Airbnb rentals, others would have purchased vacation homes that also help them earn extra income.
How it works is the owners typically enjoy a one-month duration of stay, whilst the developer manages the property based on a rental pool for the rest of the year. As such, they receive returns during the months that they don’t occupy the unit.
The trend of holiday home ownership has been catching on in recent years, partly because more people are travelling today than ever before. According to the UN World Tourism Organization (UNWTO), there were a record 1.2 billion international tourists in 2015.
Many of them are well-heeled travellers who are willing to pay top dollar to stay in sprawling beachfront villas or luxury ski chalets. Some are even known to hop on a private jet to enjoy a weekend getaway.
For the average investor, buying a holiday home to let out for part of the year may seem like an investment reserved for the wealthy, but it’s actually a lot cheaper than buying a similar property here.
Spain vs. Singapore
In Spain, for instance, €1.35 million (S$2.08 million) is sufficient to purchase a four-bedroom, three-bathroom villa with a private swimming pool in a sought-after location. A check of listing details on PropertyGuru shows that four-bedroom bungalows in Singapore’s exclusive Sentosa Cove enclave cost over seven times more, from around S$14.5 million.
According to vacation rental experts, Spain has emerged as the third most popular country in Europe for foreign property investment, and is a top destination for Asian buyers looking for luxury beachfront properties.
John Graham, an estate agent at Maskells / Graham & Associates, which sells high-end villas and apartments, said the country is also the third most visited holiday destination in the world, after the United States and France.
“Asians are buying in prime holiday locations in Marbella, Mallorca and Ibiza because it’s a safe bet,” he said. “Currently, Spanish property prices are at their lowest in almost a decade, at around 40 percent below 2007 prices, hence the continued year-on-year growth in sales over the last three years.”
Martin Dell, Director of Spanish property portal Kyero.com, added: “It’s a great time to buy, before prices rise substantially again, so you can pick a second home that’s also a good investment for the future.”
Graham noted that luxury property prices there are forecasted to rise by an average of six percent per year, but this could increase to eight percent in prime locations such as Mallorca and Ibiza. Although yields vary, the average yield per annum on rental income is around five percent, which is fairly healthy.
Aside from the attractive pricing, property rentals in Spain and in other European countries are regulated, and landlords must be licensed. Graham said: “It offers a strong business model, similar to hotels, and makes it easier to offer properties to multinational tour operators offering holidays in Spain, list on Airbnb, and be marketed by other specialised rental agencies.”
He added: “The properties are freehold and legally registered in the name of the investor. If the investor is buying more than one property, the Maskells team can arrange for the properties to be transferred into a Spanish company, which offers many advantages and tax benefits.”
Golden visa
Asian buyers of property valued at a minimum of €500,000 (S$769,432) can apply for a ‘golden visa’, which allows them to stay in Spain for five years and travel freely within European countries on the Schengen Visa.
In fact, travelling there has become much easier, with Air China, Singapore Airlines and Cathay Pacific flying directly or via the United Arab Emirates to Spain’s major airports.
Graham’s clients include private investors from China, Korea and Japan, but he’s also seeing greater interest from Asian family trusts and funds.
Some of China’s biggest companies, such as Wanda Group, have been quick to take advantage of the rock-bottom property prices, snapping up luxury hotels in the capital Madrid, as well as in Mallorca and Marbella.
Even China’s President, Xi Jinping, seems smitten with the country. “Last summer, (he) visited Mallorca and filled his plane with hundreds of litres of olive oil and Mallorcan wine,” said Graham.
While it’s common for Asian investors to pay in cash, it is also easy for them to obtain financing at low rates from their local banks. Alternatively, Maskells’ team can arrange for a loan package with a Spanish bank, subject to the applicant’s financial situation.
The average mortgage amount available to Asian investors is around 50 to 60 percent of the sale price of the property, with an interest rate that averages 3.5 percent.
Neighbouring countries
Prices in neighbouring Portugal are also below their previous peak, with the market having bottomed out in 2014. Not surprisingly, a four-bedroom, six-bathroom villa on an 11,000 sq ft site in upscale Varandas Do Lago on Portugal’s southern coast, which comes complete with a private swimming pool, outside terrace and barbecue area, is going for just €1.4 million (S$2.16 million).
Over in Italy, a million euros is a good starting budget for a restored rural property on a few hectares of land, said Gemma Bruce, Italy consultant at London-based estate agency Aylesford International.
“Prices range from €1 million to €3 million (S$1.5 million – S$4.6 million) for a restored country property with some land. There are more grandiose villas starting from €5 million (S$7.7 million).”
She noted that the priciest homes tend to be large historic estates dating back several centuries, which also come with vineyards.
“The buyers are typically investors looking for good commercial opportunities, such as large wine estates or properties that generate strong income from rentals and events,” she said, adding that they deal with many Hong Kong buyers looking to move to Italy for retirement.
Current property investment hotspots include the Chianti region in Italy, which is known for its vineyards and hilltop towns, the countryside near Florence, and Lucca in Tuscany, famed for its historic villas, said Bruce.
Land of the powder snow
Closer to home, the town of Niseko in Japan’s northern Hokkaido Island, affectionately called the Aspen of the East, has been buzzing among holiday makers and investors, owing to its renowned powder snow.
At the 68-unit Shiki Niseko condotel, all of its one- to three-bedroom apartments offer scenic views of the nearby mountains. Facilities include a fully-equipped kitchen, scheduled housekeeping services, and ski equipment storage and drying rooms for skiing enthusiasts.
The developer, Malaysia’s Low Yat Group, said, “Evidently, the affluence and wealth in Greater Asia, and the desire to own winter homes and private residency among Asians is on the rise, leading to an increase in the number of investors in this niche property market.”
Low Su Ming, Executive Director of Low Yat Group, told PropertyGuru that most of the units are on a leaseback arrangement, and this allows owners to enjoy a hassle-free investment.
She revealed that rental yields can range between two and five percent, depending on the property type and level of service.
Despite the rising popularity of ski property ownership, Graham believes these are higher risk investments compared to beachfront properties. “Ski resorts have a short peak season and rely heavily on the level of snow fall.”
His agency focuses on beach resort investments because they enjoy longer peak seasons of up to 12 months.
Safe and secure
Although some of these areas are rather remote, security is not considered a major issue. “The locations on offer to foreigners are in well-established resorts offering modern, organised, safe and clean environments,” said Graham.
His advice for first-time investors is to minimise their risk by buying rare and exclusive properties that are priced correctly and in the right location.
Tourism figures are also important for those who are looking to invest in holiday rental investments with minimum risk, he added.
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