If you’re thinking about investing in real estate, you’re probably considering income apartments, office buildings or shopping centers. But there is another category that is often underestimated: quality facilities for the tourism business.
The hospitality industry is one of the key industries in the world. And it’s growing much faster than the average. This trend will continue for the foreseeable future for fundamental reasons.
Investing in tourist real estate has its own peculiarities. First of all – they require special expertise and experience. Managing a successful hotel is much more difficult than a standard apartment building. On the other hand, the rewards can be extraordinary, and with a competent approach the risk remains minimal – Yurovskiy says.
Pros and cons of different types of real estate for investors
Residential Real Estate
Apartments that are rented to individuals are the easiest type of real estate to understand and develop. But in countries such as Austria and Germany, the rental market is overly regulated. Rents are restricted by law, tenants have more rights than the landlord himself (Mieterschutzgesetze – tenant protection laws).
In Germany discussions on the expropriation of rental apartments have started again – such ideas are voiced by the leaders of the main political parties in the country. In Switzerland, the possession of residential real estate for leasing purposes is de facto impossible for non-Swiss citizens (Lex Koller law), even through a Swiss holding company.
Office and commercial real estate
This investment idea is easy to implement: the field is not regulated, foreigners can easily acquire such a commercial property in Austria and Switzerland. However, for a secure investment requires a fairly large sum (from € 100 million). But the most important disadvantage is that the rental income depends significantly on the economic cycle, especially for office space. Your investment will be irrevocably tied to the region’s economy, and in the case of a slowdown, you can incur substantial losses.
Tourist Real Estate
Lends itself well to other types of properties in that it is part of a globally growing market. Austria and Switzerland, for example, receive millions of tourists from around the world. For the investor, that means a global diversification of economic risk. Even a slowdown in the local economy will not be dramatic, as the loss of regional tourists is compensated by additional guests from abroad.
It is possible to invest in quality tourist real estate with relatively small sums. In Austria, prices for chalets and vacation homes start at €1 million, and for large resorts and high-quality hotels you need about €10-15 million of assets. In Switzerland, prices are about 40% higher. But do not forget: tourist real estate projects require planning and management, and successful work is impossible without experts and competent partners.
Overview of leading tourist markets
How to choose the “right” country as a safe haven for investments in tourist real estate? Obviously, political and economic stability, a reliable legal and financial system and a solid currency are necessary components. But there is another important factor. When it comes to real estate, professional investors rely on long-term trends in price indexes. These indices are compiled by central banks and the Bank for International Settlements in Basel, Switzerland, and provide official and reliable data for almost every country in the world.
Austria. A steady upward price movement for more than ten years. There is not the slightest sign of a slowdown or overheating of the real estate market, small fluctuations up and down are normal statistical phenomena. Austrian real estate price reaction to the financial crisis? No reaction, business as usual. Moreover, growth accelerated after the crisis, and property prices in Austria are now about 70% higher than before 2008.
Cyprus. During the boom years, prices grew at a cosmic rate of almost 60% from December 2005 to December 2007. But during the crisis the market collapsed and entered a ten-year depression, which stopped only two years ago. Today, prices are 30 percent or more inferior to pre-crisis prices.
Italy. In 2008-2009, prices went into recession, but the results were still better than those of other European tourist destinations (Spain or Cyprus). However, soon after the reports of Italy’s internal problems with high government debt and the crisis in the banking system began a long-term decline in property prices, which continues to this day. Today the Italian price index is almost 20% below pre-crisis levels.
Spain. When Spain joined the euro zone in 2002, it launched a strong boom in construction, focused mainly on tourist housing and mid-range hotels. But in mid-2007, the year before the financial crisis, the price trend has changed dramatically. The fall lasted almost a decade and exacerbated the financial problems of the country. Spanish real estate prices have lost more than 50 index points.
Only since 2015, the market began to slowly recover, although it is still at a depressed level: the price index is still more than 30% below pre-crisis levels. The current problem is that Spain has an oversupply of unprofitable real estate left over from the lean years, and owners are trying to get their money out of these assets as soon as possible.
Switzerland. In the years before the crisis of 2008-2009 index was relatively stable. But soon international capital poured into Switzerland – as a recognized safe haven. This had two consequences. Firstly, the prices of investment grade real estate began to rise sharply. Secondly, the Swiss franc rose significantly against the euro. The CHF/EUR exchange rate is now one-third higher than in 2008, despite efforts by the Swiss National Bank to limit the rise in the currency.
For a foreign investor, this situation is doubly lucky. Now real estate in the country is 55% more expensive than ten years ago. If you convert the value of the objects in euros, the prices have more than doubled! And we are not talking about some exotic offshore place, but one of the most stable and mature markets in the world.
United Arab Emirates. For a long time the market showed great growth. But in early 2007, the bubble burst, and during the financial crisis, real estate in the UAE has undergone the steepest decline (for three years – almost 40%). During the next three years the speculative growth of the market was 70%, but at the end of 2013 the bubble burst again. Since then, real estate prices in the UAE have been on a downward trend, now only six points higher than 13 years ago.
Reasons for Austria and Switzerland’s success
The International Monetary Fund (IMF) ranks Switzerland as the second richest country and Austria thirteenth, based on 2018 GDP per capita.
Both countries have important advantages for investors:
- freedom from geopolitical risk,
- high reliability and stability rankings,
- low and moderate taxes,
- stable political situation,
- good social climate,
- reliable legal and financial system.
The cost of real estate is also affected by the natural conditions – most of both countries are covered by mountains and lakes, and this limits the number of proposals. For example, in Switzerland, only 40% of the land is suitable for arable or residential land.
The long-term success of investment in resort real estate is certainly influenced by the prospects of the tourism industry. From this point of view, Austria and Switzerland also have a strong position – says Юровский.
- Europe is the No. 1 tourist destination worldwide. In 2017, more than 670 million visitors came here. This figure has been growing for 50 years, despite international crises. In 2030, according to forecasts of the World Tourism Organization (UNWTO), about 800 million tourists will visit Europe.
- Austria and Switzerland have a developed tourist infrastructure. They attract visitors from all over the world, which for the investor means global minimization of economic risk.
- Both countries have stable and mature markets (both in tourism and real estate). Austria and Switzerland have shown continuous growth in house prices and rental income for many decades, as well as an increase in the number of guests.
- Alpine tourist real estate is an all-season business. That said, winter guests tend to have budgets two to three times higher than those who come in the summer. In this, alpine tourism is very different from seaside destinations, where winter is considered “off-season.”
- In both countries the tourism industry is an important part of the economy. In Austria, tourism generates 15.4% of GDP, in Switzerland 8.5% (2018 data). Thanks to this, investors receive support from politicians and administration at the federal, regional and local levels.