The UK holiday property sector is a growth industry which is attracting huge interest from property investors, says Iain Brown of UK holiday brand Aria Resorts. Here, he explains why investors are increasingly turning to holiday property investment.
Original article published by Property Investor UK.
What are some of the influences behind this surge?
Investors are looking for viable alternative investment options following a residential buy-to-let slow-down over the last couple of years. According to UK Finance, in 2017 there were 183,000 buy-to-let mortgages and that figure plummeted to around 70,000 last year.
Changes in taxation have had a major negative impact on the residential buy-to-let sector. The government felt that the buy-to-let industry was pushing up prices for first-time buyers and made adjustments accordingly, so the tax payable on a £300,000 property, for example, is £14,000 when it used to be £5,000.
The generous capital allowances for furnished holiday properties is another factor in the surge. The average freehold claim for a furnished holiday property let is 25% of the purchase consideration.
Investors looking for more certainty
Nervousness regarding the risks association with investment such as bonds, loan notes, stock and cryptocurrency has resulted in investors looking for more certainty. Investors are looking more at the details behind the risks.
The impressive returns available from letting holiday property makes this sector attractive to investors.
UK property's long and measurable history
UK property has largely increased in value over many years, generating an overall feeling of confidence associated with investing in bricks and mortar,
There is a long and measurable history when it comes to assessing the value of property, with the Nationwide Residential Price Index dating back to 1952. There was a dip in the value of property during the recession in 208 which lasted for a couple of years, but the figures show an upward spiral.
Fastest-growing sector in the country
Deloitte have described the UK's leisure and tourism industry as the fastest-growing sector in the country. It is predicted to be the largest industry in the country by 2025, with estimates that it will be worth an estimated £257.4 billion.
Research conducted by leading organisations such as Barclays Corporate, Booking.com, ATBA and visit Britain backs up these claims.
Major players in the holiday property sector have seen substantial growth in recent years. Sykes Holiday Cottages - a leading brand in the UK furnished holiday property market - report an increase in turnover from £13 million in 2013 to £34 million.
Large funds in acquisition made
Some of the leading brands in the holiday property sector have been the subject of major investment over the last few years, further highlighting the substantial growth in the market.
Center Parks was purchased by Brookfield for £2.4 billion in 2015 while Hoseasons was bought by Platinum Equity for £1 billion in 2018.
Park Holidays was sold for £360 million to ICG in 2016 and a year later, Onex Corp paid £1.3 billion for Parkdean Resorts.
ECI recently bought Travel Chapter and Aria Resorts is funded by Angelo Gordan, a $30 billion US alternative real estate fund.
Buoyant despite Brexit
Amid all the uncertainty caused by Brexit, the holiday property market is one of the few sectors in the UK that is buoyant at the moment. A number of factors can be identified for this.
Firstly, there is growing popularity of UK holidays and short breaks and the proven desire of consumers to drive to a leisure break. Research has shown that people are generally prepared to drive for up to three hours for a leisure break.
The weakness of the pound is another factor. The pound has devalued by 20% since the decision was made to leave the European Union, meaning that holiday makers are getting less for their money when travelling abroad.
Other factors include the current positive taxation situation for furnished holiday property lets and the appeal of a strong yielding tangible asset, together with the 70-year performance of UK property.
The Sykes Staycation Report identifies the following five regions as being in particular demand: the South West, Scotland, Wales, Yorkshire & Humberside, and London.
Travel Supermarket list the following popular areas: Cornwall, Devon, North Yorkshire, Scottish Highlands, Edinburgh, Norfolk and the Isle of Wight.
Facilities that increase demand
Holiday makers are increasingly looking for home comforts and quality leisure facilities when searching for a staycation.
Jacuzzi report that bookings for a furnished holiday let in the UK increase from 60% to 80% when there is a hot tub at the property.
The presence of a log burner also has an impact on bookings with Sykes Holiday Cottages saying that this generates an additional 10% income.
Physical and mental wellbeing is also increasingly important. According to Booking.com, one in five bookings includes a wellness element, an increase from the previous statistic of one in ten. It is therefore well worth considering purchasing a property on a site that has a swimming pool and/or spa or gym facilities etc.
All of the measurements, growth indicators and trends surrounding the UK holiday property sector are being published by credible information providers or branded operators in the UK holiday lettings space. Literally all of the feedback is positive and appealing.
The slow-down of residential buy-to-let is also a significant factor in the increased interest in furnished holiday property lets as an investment asset class. In the next 12 months, it's expected that we will see the sector continuing to attract investment from both larger institutions and private investors and Brexit has served only to make the UK holiday sector even more attractive.