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  1. Wealth
June 20, 2019

How ‘rental yield’ is changing HNW overseas property – Catherine Moye

By Spear's

Fittingly for such a large investment, an overseas property’s potential rental yield has become a huge factor in buying decisions, writes Catherine Moye

A property’s yield may not inspire the senses like glossy photos of, say, a mountainside villa overlooking Lake Como. But increasingly it is the peaks and ridges of potential rental return that persuade HNWs to buy an overseas residential property.

‘Eighty per cent of our clients put a higher level of importance on the financials than ever before,’ says Robert Green, founder of high-end agent Sphere Estates. Gone are the days when HNWs were fixated on brochures of gorgeous properties in glamorous locations: ‘Now it’s a case of agents being given an HNW’s criteria and financial boxes that need ticking, then supplying a selection of homes fitting those criteria.’

Many HNWs already own multiple homes around the world that, according to Liam Bailey, global head of research at Knight Frank, increasingly play a larger role in their investment portfolio’.

They will only consider a property that benefits that portfolio and will at least ‘wash its own face’. The old ‘A Year in Provence’ model of overseas ownership is broken. Rather than the time-consuming demands of sole ownership, buyers now prefer the more liberating freedoms of fractionally based schemes.

‘Netjets is a prime example of this trend,’ explains Hugo Thistlethwayte, head of international residential at Savills. ‘Rather than acquiring a private jet, you buy part of a plane in a pool that Netjets then runs for you – offering different membership scales. It’s a trend that has spread to all investment classes, including homes.’

There is no shortage of hotel brands and residential property operators devising flexible ownership models that scream ‘yield, yield, yield’ at this lucrative market as much as ‘location, location, location’. Achieving the perfect blend of high-end yield and personal use is the key factor. This differs between individuals, so resort operators must be flexible about their ownership packages.

Some owners want a hotel management scheme to rent their properties when they are absent, in return for a guaranteed annual rental yield. Others accept a potentially riskier but higher unguaranteed yield. Another type wants nothing to do with the hotel – they rent out their properties themselves for a better return, although this requires work and can mean an owner’s guests have restricted access to hotel amenities.

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Suite Spot

Take Toile Blanche Residences at Saint-Paul de Vence on the Côte d’Azur. Twenty furnished suites are for sale at this architect-designed extension to an existing hotel. These studios and one-bed apartments (from €390,000) are aimed at those wanting short but frequent breaks and rental income at other times. A guaranteed yield up to 3.8 per cent net is offered, alongside a more flexible usage plan without a guaranteed yield.

Owners benefit from five-star hotel facilities, including an outdoor swimming pool, wellness centre and fine dining. Most resorts give owners the option of whether or not to enter their property into the hotel rental pool and receive income designed to cover annual ownership costs.

Take Fairmont Residences, Palm Royal Marrakech: a development of branded serviced villas within an exclusive, low-density resort. Residences put into the pool can only be rented through Fairmont, which throws in VIP access to services and amenities at the group’s hotels worldwide.

At other resorts such as at Edenrock in Mauritius, villa owners can opt out and manage their own rentals, often for a much higher annual return (one owner made £60,000 per annum), although the resort restricts guest access to some amenities.

The question is whether to choose guaranteed or non-guaranteed yield. ‘Buyers need to look at the offerings very carefully,’ says Green. ‘I’m sceptical about guaranteed yields because 99 per cent of the time the developer is the guarantor and will make other deductions, depending on how much you use it.’

Thistlethwayte says there is also a growing societal backlash against having houses closed up for most of the year because of the impact on local communities, especially shops and restaurants. ‘Once these societal norms have shifted then the legislation tends to follow it,’ he added.

Hence President Macron’s proposal to double the council tax on second homes in France, announced last year.

New connections

Another societal shift is towards websites like Airbnb, now the world’s biggest ‘hotel group’. Upscale property owners, especially younger ones, are increasingly using these to promote their homes for rental – or getting someone to do it for them.

‘Even owners who wouldn’t have dreamed of renting their overseas homes a decade ago are increasingly asking, “What will it rent for?”,’ says Andrew Langton, founder chairman of Aylesford International, which sells prestige properties in Europe.

‘Good houses cost a lot to run, with staff, housekeeping, winterising and so on. With residential property increasingly seen as an investment class, an owner’s mindset is far more geared to it needing to justify itself rather than purely be a lifestyle indulgence.’

Catherine Moye is a travel and property writer, novelist and screenwriter

This article first appeared in issue 68 of Spear’s magazine, available on newsstands now. Click here to buy and subscribe

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