Global prime second home markets expanded rapidly in the run up to 2008 fuelled, in part, by cheap credit. Resort, retreat and second homes are a particularly western phenomenon, being more popular among Europeans and North Americans than with Asians.

This meant the debt crisis, hitting ‘old world’ economies harder than ‘new world’, had a significant effect on this type of real estate. There were virtually no Asian buyers to plug the gap when westerners departed, unlike world city markets which showed more resilience and faster recovery.

The use of high loan to value mortgages pre-2008 enabled buyers to enter markets they would not otherwise have been able to, providing a means for wealthy individuals to invest in multiple properties. The withdrawal of credit after the global financial crisis shifted the dynamics of these markets. Mortgaged purchasers withdrew, equity buyers came to dominate, so only the most established prime locations saw sustained activity. Downward price corrections, especially in high supply markets, have been significant in some cases.

There are now three trends that put ‘retreat properties’ in a better position than they have been for the last five years. First, many prime city markets have shown good performance but have become much more fully valued, so buyers are actively looking for alternative real estate markets in which to invest. Prime second homes in the most sought after locations are an obvious choice.

Second, as credit markets begin to become more liquid, investment is returning to residential retreats. In Europe, low interest rates are making overseas property loans more affordable (although lending requirements are much more stringent than in the pre-crunch era). Equity remains the most dominant form of finance in less established markets.

Third, some jurisdictions – as diverse as Portugal, Cyprus and Antigua, for example – are offering ‘golden visas’ to real estate purchasers above a certain value. This is actively boosting demand for resort and retreat properties from nationalities not often associated with this type of property.

Confidence is also building as some of the biggest second home investor nations, such as the UK and the US, see more engrained economic growth at home. In Britain, a strengthening pound has left euro denominated markets looking particularly attractive (prices in Spain are 44% off their former highs in sterling terms). Scandinavians, relatively unscathed by the global financial crisis, are in a strong purchasing position and are particularly active in the prime hotspots of France, Spain and Italy.

Given that in many of these markets prices are more than 30% below their former peak, many buyers are moving now to secure a deal. Transactions, however, were the biggest casualty of the market downturn, and the majority of ‘retreat’ home owners have held their assets throughout the market downturn – distressed sales in the prime locations profiled here have been relatively few.

Resilient local markets

National trends often disguise more resilient local markets. In hard-hit Spain and Portugal, where prices have fallen by 40% (IMIE Tinsa) and 18% (INE) from their former highs, respectively, the prime residential retreats so attractive to the international market have proved resilient. Portugal’s Quinta do Lago, a prime residential resort on the Algarve, experienced a relatively strong 2013, this driven in part by the country’s new ‘golden visa’ programme.

Where tourism leads

Tourism often goes hand in hand with an area’s success as a second home destination. So an improving global tourist sector bodes well for the long term success of these prime residential retreats.

According to the UN World Tourism Association, the number of international tourist arrivals grew by 5% in 2013 to 1.087 billion, the highest number ever recorded. Where tourists lead, real estate buyers will often follow – as long as the price is right.

If the tourist story is important for real estate, then changes in this sector are of relevance. The composition of global tourists is changing: China became the number one source market for tourists in 2012. While currency and other restrictions are likely to prevent the average Chinese real estate investor buying overseas for at least the next decade, high profile, high-net-worth Chinese investors have already made moves into vineyards in France and South Africa, for example.

Real estate purchase for most Chinese has, to date, been an inward investment in home city real estate, rather than a leisure play. If the Chinese were to embrace ski resorts and sunbelt destinations in the same way as Americans and Europeans, the potential from this market to expand dramatically would be substantial. France, already the biggest recipient of Chinese tourists in Europe, is well placed to attract prospective buyers from this region.

Golden visas

Countries employing ‘golden visas’ are actively turning depressed real estate markets to their advantage. Many are also making a direct link, explicitly or implicitly, between the propensity for those investing in a country’s real estate to also invest in other areas of its economy. Real estate investor visa programmes, or ‘golden visas’, are now a key strategy in reviving residential markets and building broader economic recovery in countries including Spain, Greece and Portugal. These schemes work by investors making a minimum investment in residential real estate being granted a visa providing residency rights or, in some cases, citizenship and consequently valuable access to other European Schengen Area countries.

Portugal has been among the most successful in the golden visa initiative, with its €500,000 minimum investment scheme enjoying strong traction with the Chinese, who accounted for 78% of the 318 visas that were issued in 2013. Russians, Angolans and Brazilians have been the next biggest recipients.

Spain, Cyprus and Greece have since followed suit with their own schemes, while a number of Caribbean islands offer particularly generous programmes, summarised in the table below. In both Grenada and St Kitts and Nevis, no visit is even required.

Taken from
Spotlight: Prime Residential Retreats 2014