Tourist real estate in the Alps: an analysis of risks and opportunities for investors
The author of this article, an investment manager in a Swiss family office, talks about the pros and cons of resort real estate as a field for investing, analyzes popular markets, highlights the main trends in tourism and advises how to design a deal to get the most out of it.
Pros and cons of different types of real estate
Overview of leading tourist markets
The reasons for the success of Austria and Switzerland
Approach to investing in resort real estate
Investment Bonus: Residence Permit
If you are thinking about real estate investments, then most likely you are considering profitable apartments, office buildings or shopping centers. But there is another category that is often underestimated: quality facilities for the tourism business.
Hospitality industry – one of the key in the world. And it grows much faster than average. In 2018, tourism brought the global economy $ 8.3 trillion – 10.4% of world GDP. In the foreseeable future, this trend will continue due to fundamental reasons.
Investments in tourist real estate have their own characteristics. First of all – they require special expertise and experience. Managing a successful hotel is much more difficult than managing a standard apartment building. On the other hand, remuneration can be extraordinary, and with a competent approach, the risk remains minimal.
Pros and cons of different types of real estate for investors
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. Rental rates are limited by law, tenants have more rights than the landlord himself (Mieterschutzgesetze – tenant protection laws).
In Germany, discussions began again on the issue of expropriation of rental apartments – such ideas, including those expressed by the leaders of the main political parties in the country. In Switzerland, the ownership 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 retail property
This investment idea is easy to implement: the sphere is not regulated, a foreigner can easily acquire a similar commercial object in Austria and Switzerland. However, reliable investments require fairly large amounts (from € 100 million). But the most important disadvantage is that rental income depends significantly on the business cycle, especially for office space. Your investments will be irrevocably linked to the economies of the region, and in case of a slowdown you may incur substantial losses.
Tourist real estate
Wins in other types of objects that is part of a globally growing market. Austria and Switzerland, for example, are receiving millions of tourists from all over the world. For the investor, this means a global diversification of economic risk. Even a slowdown in the local economy will not be dramatic, since the loss of regional tourists is compensated by additional guests from abroad.
Invest in high-quality tourist real estate can be with relatively small amounts. In Austria, prices for chalets and holiday homes start at € 1 million, for large resorts and high-quality hotels, assets from € 10-15 million are needed. 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 investment in tourist real estate? Obviously, political and economic stability, sound legal and financial systems, and hard currency are necessary components. But there is another important factor. When it comes to real estate, professional investors rely on long-term price index trends. 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.
Let’s take a look at the most interesting tourist property markets through the eyes of a professional.
The graphs show the period from 2006 to 2018, long enough to reflect obvious trends. In addition, he gives us an understanding of the behavior of markets after the great financial crisis of 2008–2009 (the orange rectangle). All data is ordered by the value of the index 100 at the beginning of 2006, so the graphs can be compared directly.
Property Price Index in Austria
Hereinafter: real estate price indices for Austria, Cyprus, Italy, Spain, Switzerland and the United Arab Emirates. Period 2006–2018, quarterly data. The base value is 100 = January 1, 2006. Data Sources: LSI (Bank for International Settlements), Switzerland; SNB (Swiss National Bank), SIX Swiss Exchange, OENB (Austrian National Bank), TU Vienna.