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MAKING MONEY – ON THE PISTE

MAKING MONEY – ON THE PISTE

In the latest in a series of articles on hot investment opportunities the Money Doctor, John Lowe, explains how buying a ski property can lead to some very cool returns.

There is no business like snow business when it comes to investing in ski resort property. Buy in the right location and you could enjoy capital appreciation of up to 33% a year, rental yields of around 5% a year and the opportunity to enjoy inexpensive holidays on the slopes thrown in. Buy in the wrong location, however, as some investors have found to their cost, and you’ll see your chances of profit melting away. Which is a shame, because when it comes to making money, ski-properties offer the potential for some very cool gains.

What should a canny investor be looking for? The main consideration is the quality and quantity of the snow. Due to the effects of climate change it is important to buy at sufficiently high altitude to ensure a long, reliable season. For this reason such locations as Cyprus and Turkey are probably not a good idea. Anyway, ski enthusiasts want more than just snow - they want a good range of challenging runs as well as first class facilities. With regard to the latter if there aren’t well maintained, convenient lifts – forget it. You should probably also rule out anywhere that is difficult to get to - proximity to an airport definitely adds value. Having said this, one of the resorts I am going to suggest in a moment is Niseko in Japan. Why? Because the area gets 13-15 metres of snow a year and has been described by more than one Olympic champion as ‘the best powder in the world’.

First class facilities extend to more than efficient lifts, of course. Bulgaria – until recently one of the fastest up and coming ski destinations – has fallen from grace because many European skiers want a better après-ski experience than the country can offer. In fact, despite the hype by auctioneers and developers, Bulgaria is definitely not a good investment option. An over supply of properties, lack of resale market and failure by most promoters to honour their ‘guaranteed rental’ promises make it risky. There is also a worryingly large disparity between the price of local and resort properties.

So where should you be looking for peak returns? The choice, purely from an investment perspective, divides into traditional European resorts of which Austria, France and Switzerland offer the best value; or more exotic resorts such as those found in Canada or Japan.

Austria
Buyers have been slow to realise that since Austria joined the European Union the restrictions limiting the amount of property sold to foreigners have been largely lifted. Some areas are easier than others. You can buy in Salzburg, for instance, providing you make the property available for rental but it is still almost impossible to buy for holiday use in the Tyrol. Prices are extremely competitive when compared to the rest of Europe. A ski-in, ski-out chalet in, say, the Carinthian province can be had for around €175,000 – whereas the same thing would probably cost about €250,000 in Salzburg. In general, decent property is about €2,000 per square metre.

France
The first thing to remember about investment property in France is that you can save a fortune if you go for a French leaseback deal. I’ve written about these before and if you want extra information please email or write to me. Between 2002 and 2005 areas such as Tignes and Courchevel enjoyed 25% a year capital appreciation and still managed to deliver rental yields of 4% - 5%. One of the big pluses with many French ski resorts is that they are also designed for summer holidays – optimising the rental return. A two bedroom apartment in somewhere such as Tignes will set you back €325,000 or more - but the Pyrenees or Val D’Isere offer better value. At the bottom end you will find studio flats in somewhere such as Chamrousse from €60,000. In general decent property is about €6,000 - €7,000 per square metre.

Switzerland
The Swiss Alps are still about a third cheaper than the French Alps – but prices are catching up fast. The best investment opportunities are in the smaller, less well-known resorts often in close proximity to larger, better known resorts. For instance, you might consider Les Collons which is in the same area as Verbier. Climate change is definitely an issue in the Alps and you should buy at altitude and avoid the lower resort areas such as Gstaad. Prices have been rising at between 15% and 20% a year and mortgage interest rates are low.

Canada
Capital growth in Canada has been slow to date. For instance, in three of the more popular areas – Kootenay, Blue Mountain and Tremblant – it has been running at no more than 7% a year. This is, of course, still an excellent return but one has to remember that there is an abundance of land in Canada and if prices rise developers tend to simply build more homes. This said, the high altitude resorts offer a long season and luxury facilities, and rental yields have been a reliable 3% - 7% for many years. What’s more, larger properties represent excellent value for money - €150,000 will buy you a nice chalet in somewhere such as Banff or Whistler

Japan
Niseko in the south west corner of Japan’s northern island, Hokkaido, has been receiving a lot of positive attention from the international ski set in the last few years. Why? Because the area gets some of the best snow in the world yet the slopes are relatively under-utilised. Prices have been climbing rapidly – 33% growth was recorded last year alone – which goes against the general trend in Japan where land prices are in their 15th consecutive year of decline. Still, compared to Europe or even Canada you get a lot for your money. A six bedroom luxury chalet, for instance, can be had for around €350,000. So keen are the locals to attract international buyers that many have been going on English language courses and Niseko Real Estate now has an English language website: www.nisekorealestate.com

Before making any financial decision you should always take professional advice.


John Lowe, Fellow of the Institute of Bankers, is managing director of Providence Finance Services Ltd Stillorgan Co Dublin and author of The Money Doctor Finance Annual 2006 (Gill & MacMillan) tel +353 278 5555, email [email protected] or [email protected]


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