18th October 2019


 

Why Is The UK Holiday Property Sector Attracting Huge Investment Interest?

The UK holiday property sector is a growth industry which is attracting huge interest from property investors. 

Positive media coverage appears on a regular basis, with a wide range of sources including Money Week, Travel Weekly, YourMoney.com and the Office for National Statistics

highlighting the surge in interest. 

Using information from very credible sources, this article will explore why investors are increasingly turning to holiday property investment, providing an evidence-based summary.

What are some of the influences behind this surge?

Investors are looking for viable alternative investment options following a sharp residential buy-to-let exodus over the last couple of years. According to UK Finance, in 2017 there were 183,00 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 property lets is another factor in the surge. The average freehold claim for a furnished holiday property let is 25% of the purchase consideration. This means that for a property costing £500,000, you could expect to find £125,000 in capital allowances. 

To meet the criteria, the property needs to be available for letting 210 days a year and achieve 105 days’ letting. More information about the tax implications for furnished holiday property lets can be found via gov.uk.

Investors looking for more certainty

Nervousness regarding the risks associated with investments such as bonds, loan notes, stocks and crypto currency has resulted in investors looking for more certainty. Investors are looking more at the details behind the risks.

Research also suggests that around a third of property investors are waiting until the outcome of Brexit before committing themselves.

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 2008 which lasted for a couple of years, but the figures show an upward spiral.

While past performance can never be an indicator of future performance, people can see that property in the UK appreciates in value over time. 

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, ABTA 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. 

Airbnb, another major brand, have seen their revenue leap from 50 million dollars to 2.6 billion dollars since 2013 while Center Parcs have seen takings increase from £385 million to £500 million since 2014.

Double digit booking growth this year

Leading names in the holiday property sector have seen impressive increases in bookings. Hoseasons report a 16% rise while Sykes Holiday Cottages have experienced a 25% increase and bookings for Holidaycottages.co.uk are up 33%.

Large funds in acquisition mode

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 this 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 Gordon, a 30 billion dollars 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 the 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 percent since the decision was made to leave the European Union, meaning that holidaymakers are getting less for their money when traveling abroad.

The ease of marketing a holiday property has also strengthened the holiday property market. With the use of social media and holiday booking websites, has never been easier for people to purchase a holiday property and rent it out. 

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 volatile performance of other investment vehicles and options also has to be taken into account. 

Holiday hot spots

When considering the purchase of a UK holiday property, it is naturally very important to carefully consider which region to choose. 

The Sykes Staycation Report identifies the following five regions: South-west, Scotland, Wales, Yorkshire & Humberside, and London.

Travel Supermarket list the following popular areas: Cornwall, Devon, North Yorkshire, Lake District, London, North Wales, Scottish Highlands, Edinburgh, Norfolk and the Isle of Wight. 

Aria Resorts, rapidly emerging as a major brand in the UK holiday property investment sector, provide high-quality, fully-equipped, self-catering apartments, lodges and cottages in some of the most popular tourist destinations, including North Yorkshire, Devon, Cornwall and the Isle of Wight. 

Facilities that increase demand

Holidaymakers 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 per cent to 80 per cent 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 quoted 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 facilities etc. 

Iain Brown, CEO of fast-growing UK holiday brand Aria Resorts, commented: "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 demise 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, we expect to see our 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."