The international market for second homes changed significantly over the past ten years. Buyers now prioritize rental income over purchasing exclusively for their own use, according to a new international survey – Spotlight: Second Homes – Global Trends in Ownership and Renting – from real estate adviser Savills and HomeAway.
In the 1970s, nine out of 10 owners kept their second homes to themselves. Even as recently as 2000, eight out of 10 owners never rented their properties to travelers. A period of rapid change now finds that more than two-thirds of owners rent their second homes for at least part of the year to cover some or all of their ownership costs.
For the first time, owners’ primary motivation for ownership is rental income potential, which has overtaken family getaways as the initial use for a second home.
“In a low-interest rate environment, investors are seeking out income-generating assets,” says Paul Tostevin, associate director, Savills world research. “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-fueled boom of the early 2000s and online expansion of the travel industry triggered rapid growth in the market for additional vacation homes across the U.S. and Europe. Low-cost airlines opened new destination choices overseas. British buyers became particularly active in second-home acquisition overseas.
When the global financial crisis hit, national housing markets contracted and demand for second homes fell. The market retreated to prime, established locations, led by wealthy, capital-rich individuals with little or no reliance on borrowing. While growth resumed in recent years, however, the sector looks very different, with smaller and cheaper properties leading the market and buyers attuned to the potential for income.
Traveler demands have also changed. With more travelers using online marketplaces for short-term rental accommodation, the market has become much more accessible for owners to rent their properties, even beyond the traditional family holiday at the beach or ski slopes.
“Global tourism continues to grow, with international tourist arrivals up by seven percent last year to a record 1.3 billion. At the same time, the rapid expansion of online vacation home platforms … opens the market to new target groups and makes it much easier for owners to make their properties income-producing,” adds Tostevin.
Based on the survey sample, the average price of a property purchased last year stood at $291,000 – 37 percent less than a decade ago. Just over a third (34 percent) of properties bought were condos, up from a quarter over the last 10 years, reflecting the changing nature of the second-home market.
A third of all owners cover costs with rental income, and another third make a profit. The average gross yield across the sample stands at 6.4 percent, or 3.9 percent after costs, but excludes taxes.
In the U.S., Florida is top of the list for ownership, accounting for 14 percent of second homes, followed by California (7 percent) and North Carolina (4 percent). Americans are the primary international investors of vacation homes in neighboring Mexico and Canada.
Seventy percent of U.S. owners completely cover the cost of ownership with rental income.
British second-home buyers shop more widely than all other nationalities represented in the survey, with only 24 percent of second homes located in the UK. France accounts for 19 percent of properties owned and Spain 16 percent, while the top three location choices by international owners are The Algarve (5 percent), Costa del Sol (4 percent) and Costa Blanca (4 percent).
Similarly, only a quarter of Dutch-owned second homes are in the Netherlands. Across all other nationalities represented in the survey a majority own second homes in their own country. A very clear majority of French (86 percent) and American (85 percent) owners favor their home turf.
The Spanish, Italian and Portuguese – all countries favored by vacationers – strongly favor their own countries, with less than 5 percent of their additional homes bought overseas.
© 2018 Florida Realtors®