A brief commentary on where prime residential property sits within the portfolios of asset managers and UHNWIs, with a focus on property in the key alpine resorts
1. Residential And Ski Property As
An Asset Class
david@alpinepropertysearch.com
+44 7584 357007
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2. Discussion Points
• Interest rate policy and the search for yield
• Property within an asset allocation model
• Demographics as an investment theme
• Ultra High Net Worth Individuals driving demand for prime residential/second homes
• Key resort attractions
• Switzerland and the Swiss investor
• The rise of the dual-season resort
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3. 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 in order 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.
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4. 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 seen as a
profitable long-term investment theme according to the Financial Times.
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5. 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 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 residence 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%).
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6. 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).
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7. Alpine Property Search 7
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.
Megeve – new Four Seasons hotel, 8 Michelin starred restaurants.
Luxury residential developments in the Courchevel valley, Portes du Soleil, Val d’Isere,
St Moritz.
8. 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 Justices’s 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
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9. The importance of dual-season facilities
Investors looking to rent out their property during the summer months show a
preference for the mid-altitude resorts (Chamonix, Megeve, 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.
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10. Disclaimer
This report constitutes commentary and should not be taken as investment advice.
For further information on Alpine Property Search please go to our website
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