Rental Income now the priority for Overseas Property Buyers
According to a joint report by Savills and HomeAway, income, rather than lifestyle, is now the key word for overseas property buyers.
The profile of the second home buyer has changed significantly over the past ten years, with buyers now prioritising rental income returns over the buying of a property purely for own use.
As recently as the year 2000, 80% of all owners had never made their properties available for rental. After a period of rapid change, more than two thirds of owners now let their properties for at least part of the year, either to cover part or all of their annual running costs.
Many buyers are now motivated by the potential for rental income and those people holding a property as a rental income asset has risen sharply over recent years. By the time of the credit crunch back in 2008, 19% of buyers bought on a ‘buy to let’ only basis – today, around 30% of all second homes are bought solely with rental income in mind.
Said Paul Tostevin, Associate Director – Savills World Research, ‘’ In a low interest rate environment, investors are seeking out income generating assets – today’s second home buyers want properties to work for them financially and they are increasingly looking not just to cover costs but to turn a profit.”
The credit-fuelled boom of the early 2000s and the rapidly expanding tourist industry triggered rapid growth in the market for second homes, primarily across European and US destinations and a number of low cost airlines opened up new routes to access those destinations.
When the global financial crisis hit, national housing markets worldwide contracted and demand for second homes fell. Growth has resumed in recent years, but the sector looks very different today.
Not only are buyers much more aware of the potential for income, the profile of rental demand has changed. The advent of online marketplaces has made it a lot easier for owners to find suitable tenants as well as opening up the market beyond the traditional short term holiday lets.
“Over the past 10 years, the online travel industry has changed significantly. Staying in a holiday home has transformed, moving from an alternative way to holiday to the preferred way,” so says Christophe Pingard, Vice President – EMEA, HomeAway. “With the rise in the popularity of the sector, holiday rentals are attracting not only significantly more people than before, but also a new group of younger travellers and millennials. These rental travellers are willing to spend in order to secure the most suitable property, though price is still an important factor, particularly as they are travelling more than ever before. ‘’That’s one of the factors that make staying in a holiday home so attractive – it makes seeing the world more affordable for everyone.”
“Global tourism continues to grow – international tourist arrivals in 2017 was 1.3 billion, up 7% on the previous year. Alongside this, the growth in online holiday home platforms (such as HomeAway), opens up the market to new target groups, making it much easier for owners to realise rental income” says Tostevin.
Post-credit crunch, the market retreated to prime, established locations, led by wealthy, cash rich buyers with little or no reliance on borrowing. The easing of credit conditions and a low interest rate environment has opened the market up again and demand for smaller, cheaper properties has grown since 2013.
These days, around 30% of all owners are now able to cover annual running costs from rental income and a further 30% claim to show a profit. The average gross yield across the sample of 4,300 owners was 6.4%, with profit averaging out at 3.9% after costs but excluding any relevant taxes.