Property Futures

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Island investments: your own slice of paradise

Island investments: your own slice of paradise.

Island investments: your own slice of paradise

Property Life is about to launch its much-anticipated Islands issue, so it seems fitting to offer some advice on holiday home investment for island properties – for all kinds of islands.

From sandy beaches, warm climates, surf and turf, island investments often have extraordinary property markets to match.

But as you will also see, an island doesn’t have to be just about snorkelling and eating fresh seafood. A city island such as Manhattan, Singapore or Hong Kong, or a cultural destination, such as Japan or Cyprus, has an entirely different take on tourism. And their holiday home potential is just as exciting.

Rental markets 
on city islands

The rental markets in most of these island cities is quite large. In Manhattan, for example, not only is there is a shortage of inventory, especially with condos, but the Federal Reserve Bank of New York is saying that there is currently better value in renting than in owning because the overall price of apartments has increased relative to rental prices. This drives rentals because local Manhattanites are finding it difficult at the moment to get on to the property ladder; therefore, a foreign investor with the proper financing will find an advantage to ownership in the form of rental returns. With a condo shortage, however, consider instead a town home or co-op apartment.

Singapore and Hong Kong as well have strong rental markets, in large part due to their high number of corporate expats from all over the world moving in for long- and short-term job contracts. Just as Manhattan, Singapore and Hong Kong are financial hubs, which means that all three of these island cities will always have tenants who need rented accommodation.

Yes Manhattan, Singapore and Hong Kong are expensive. These aren’t ideal locations for investors struggling to find financing. In fact, all three cities are in the top 10 of Global Property Guide’s list of the most expensive cities in the world (9th, 7th and 3rd, respectively).

Additionally, Singapore and Hong Kong specifically have had cooling measures recently issued by their governments because the cost of the already-expensive property is on the rise, and some locals are being priced out of the market altogether. With added taxation schemes for foreign investment, it may seem on the surface that these locations are not suitable investment destinations. However, for the right investor, one lucky enough to have the cash and time to spare, the rental yields are potentially higher than the property values.

It boils down to selecting the right neighbourhoods and areas, and this is where working with an experienced, local estate agent will pay off. An accountant who specialises in real estate can also help with cost and income scenarios, and is also worth hiring.

 

Rental markets 
on tourist islands

Considering that the earth’s surface is 71% ocean water, there is no end to the number of beautiful beaches found on the coastlines of the thousands of islands dotted across the globe. But for an investment property, beauty is not as important as rental potential.

Island LivingTwo important considerations for beach holiday home investments are infrastructure and tourism. More so than in mainland beach areas, an island’s tourism industry cannot survive without infrastructure – airports, roads, hospitals or medical centres, and a hospitality industry to support the tourist activity. Your investment will more likely pay a rental yield if, for example, tourists can reach the island easily – if not by air then by ferry or boat – and not have to travel too far (or at least travel by paved road) from the airport/ferry port to reach their rental accommodation.

Your investment will also benefit by being within a reasonable proximity to other entertainment venues and tourist services, such as restaurants, bars, cafés, and even aquariums, museums or other cultural centres.

While it is certainly true that there is a segment of the rental population who seek seclusion in their beach holiday, these tend to be niche markets, from either end of the scale of the tourist pool: the super wealthy who can afford to rent a car and pay exorbitant rental fees for a beach-front property with total privacy, to the backpackers who relish a hike as much as the low rental fees for out-of-the-way accommodation.

The wider you cast your net for catching potential renters, the lower the risk for the investment property. An additional way to increase the number of tenants for your beach holiday home is by choosing a destination with a long tourist season. This typically comes down to climate, and some of the islands featured in this island issue of Property Life have some of the best climates in the world.

South-East Asia, although a tropical climate which means heat and humidity, has some of the longest tourist seasons on offer:

  1. Thailand (Ko Samui, Phuket)
  2. Malaysia (Langkawi, Penang)
  3. Indonesia (Bali)

Another tropical destination, but with slightly less heat and humidity than South-East Asia, is the US state of Hawaii, located in the Pacific Ocean. Further along in the Atlantic Ocean is the country of the Bahamas, which welcomes tourists much of the year, although the hurricane season during August and September does shorten the tourism industry’s marketable season.

 

Rental markets
on cultural islands

It’s not always about the weather, however. Cyprus, New Zealand, the British Isles and Japan are also islands with booming tourism, but are not necessarily the first place a tourist thinks of for lying on a beach and soaking up some rays while sipping an exotic, tropical island cocktail.

These islands have something unique to offer tourists: culture.

New Zealand - Milford SoundSpanning the globe from the Mediterranean to the western shores of the Atlantic all the way to Australasia and East Asia, the people who inhabit these islands are proud of their history and culture and find creative ways for sharing their enthusiasm with visitors – museums and heritage centres, a multitude of dining and shopping experiences, and nature-loving tours and excursions.

These islands represent some of the best destinations for soaking up – not just sun rays – the local culture and atmosphere by simply being on their shores. Observe the architecture, listen to the locals speaking their native tongue and going about their day-to-day lives, partake in the local cuisine, and if you’re lucky enough to be visiting during a festival or some sort, be sure to participate!

All too often on typical island resorts, there is a manufactured feeling and it almost seems like you could be anywhere on earth. A cultural island, for lack of a better term, lets you know beyond a shadow of a doubt that you are in a foreign country and does its best to let the tourists in on their way of life.

For a foreign investor seeking high rental returns, this type of holiday destination appeals to a different type of rental market than typical island getaway scenarios, but nevertheless has a tourism industry that is just as large, providing strong rental-return value.

 

Holiday home
investment advice

Regardless of the destination, engage the services of local professionals, from an attorney to an estate agent, even perhaps a financial advisor. Seasoned professionals who are familiar with the local market are the best qualified to help a foreign investor and advise on investment opportunities.

    • Visit before you buy. This is true even if you live a long way from the location you’ve selected for your investment. Most estate agencies, especially reputable ones, offer inspection packages. The cost of the flight and stay are also often deducted from the deposit or cost of the property if you choose to buy, or are even paid for by the developer or estate agency for those who have already put down a deposit.
    • Remember infrastructure. This is perhaps the most important aspect of a sound holiday home investment because if your renter cannot reach your holiday home, they simply will not come.
  • Consider climate. Your rental market, and therefore rental yields, is heavily influenced by the tourism season, so in addition to studying property market trends, study climate factors and tourism reports as well.

Holiday home investments are just as diverse as the markets they represent, and offer some of the best rental returns available. There are indeed many ways to look at an island – from cosmopolitan city living to laid-back beach resorts to more culturally focused experiences – but the practices of a sound investor will always be the same: do your homework and consult local professionals.

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This entry was posted on January 31, 2013 by in Future, Investment, Property and tagged , , .

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