Can Ski Property be considered as an asset class?
In this brief commentary I discuss how unconventional monetary policy has distorted investment returns, how the search for yield is now leading to investors and UHNWIs raising their weighting in property, and what makes a particular resort an attractive investment option.
Discussion Points
- Interest rate policy and the search for yield
- Property within an asset allocation model
- Demographics as an investment theme
- Key resort attractions
- Ultra-High Net Worth Individuals driving demand for prime residential/second homes
- Switzerland and the Swiss investor
- The rise of the dual-season resort
Policy Pressure Will Continue to Impact Investment Activity
- Central Bank QE has suppressed investment returns leading to a focus on “alternatives”. Institutional capital has surged into real estate over the past two years in search of return and is increasingly cross-border (20% of deals in 2015 according to Savills).
- Yet institutions remain under-invested in property as an asset class with a 110bps underweight relative to benchmark (source: Cornell University) despite a yield advantage of over 300bps relative to US 10-year Government Bonds.
- Market volatility and the lower oil price have led Middle Eastern sovereign wealth funds to pull out of their investments to fund domestic social commitments. However, in East Asia demand remains strong with Chinese investment into Europe increasing. Japan is also a source of growth potential with the world’s largest pension fund GPIF ($1.2trn) seeking higher returning overseas investment opportunities.
- Demography is driving interest in residential property. Its share of overall investment in the property market almost doubled to 18% since the downturn (source: Savills). Homes for developed market millennials and emerging market middle classes are a profitable long-term investment theme according to the Financial Times.
Private Investor Demand – UHNWIs
- Ultra High Net Worth Individuals with assets over $30m (not including their primary residence) are the most important source of investment in prime residential and ski properties.
- According to a 2015 study by New World Wealth and Knight Frank (The Wealth report) there were 187,468 UHNWIs globally controlling assets of $20trn, with 41% growth to 263,483 forecast by 2025.
- 66% growth forecast in Asia, 27% in Europe (of which 12% in Switzerland).
- Primary residences and second homes form 24% of total asset allocation, second only to financial instruments (28%).
- Over the past 10 years 54% of wealth managers said their clients had increased allocations to residential property with 40% expecting it to increase over the next 10 years. 30% of their clients are considering a residential purchase in 2016.
- The most important factors for purchase: as an investment for future sale (55%), diversification (46%), safe haven (47% – for CIS clients 80%), childrens’ education (19%).
Key Resort Attractions
- Proximity to public/private airports – within 2 hours by car or less by helicopter
- Europe’s busiest private jet airports: 1) Paris Le Bourget, 2) Geneva, 3) Nice, 6) Zurich.
- Sion airport’s traffic doubled in the period 2004-2012 with suitability for aircraft up to large airliners.
- According to the aforementioned Knight Frank Wealth Survey, Geneva is listed as the 10th most important city globally for UHNWIs (London is ranked top). While London is home to 4,900 UHNWIs and Geneva 1,600, there are 16,100 within two hours of London and 18,100 within two hours of Geneva making Geneva and its environs the largest concentration of multi-millionaires globally (source: Sabre Airline Solutions)
Investment in Resort Infrastructure
- Courchevel Valley – 100m euros in lift system, 67m euros aquatic centre, 3 Palace hotels – the only ones in the Alps.
- Chamonix – 477m euros for the lift systems over the next decade
- Megève – New Four Seasons Hotel, 8 Michelin starred restaurants
- Luxury residential developments in the Courchevel Valley, Portes du Soleil, Val d’Isère, St Moritz.
Switzerland
While Switzerland has been impacted by residential legislation and a strengthening currency, non-Swiss purchasers can still choose from a number of excellent properties, with demand in the CHF 2m-5m range now matched by activity in the CHF 10m+ bracket (source: Knight Frank)
Looking forward, less well-known resorts where second homes are well below the 20% threshold could see above average price inflation as Lex Weber pushes buyers off the beaten track.
As the table below shows, a stronger franc gives the Swiss more purchasing power in nearby French resorts. The European Court of Justice ruling that France can no longer apply the “Social Charge” on rental income and capital gains (equating to a saving of up to 15.5%) for all non-residents has improved sentiment.
Average property price (in euros) searched by nationality on www.knightfrank.com
| Russia | Middle East | Switzerland | France | UK |
| 2.9m | 2.5m | 2.7m | 2.1m | 1.8m |
The Importance of Dual-Season Facilities
- Investors looking to rent out their property during the summer months show a preference for the midaltitude resorts (Chamonix, Megève, Les Gets/Morzine, Villars/Diablerets, Crans Montana) where non-snow sports and international schools result in longer occupancy periods.
- In 2014/15 Geneva and Lyon airports cumulatively saw a million more passengers arrive during May to October than during the ski season (Source: Geneva & Lyon aeroports).
- My experience leads me to conclude that the Swiss resorts need to catch up their French counterparts in their summer offering. The facilities in Chamonix and the Portes du Soleil including mountain biking, paragliding, zip wires, swimming and golf are superb. It is therefore encouraging that resorts in the Four Valleys are joining forces and making changes to the tourist taxation system in order to fund greater investment in the future.
02 Comments
Well-written article, buying a ski apartments is lifestyle investment: low risk, capital growth with the ski tourism increasing year by year
Thanks for the comments. While I did not cover Austria in the blog, I fully agree with your overall conclusion, and Austria in particular.