Second home developments highlighted as a growth area for investors in UK

After a slight decline of 0.4% in 2008 the number of second homes in Britain rose by 2.6% in 2009, to reach record levels of 245,384, says the Knight Frank new-build second homes report 2010.
 
The real estate consultants expects to see a further 2% rise in the total to more than 250,000 in 2010 with low interest rates reducing the cost of buying property and the attraction of keeping money in cash.
 
The report also points out that letting out a second home cold be easier with forecasts by Deloitte and Oxford Economics suggesting that between now and 2020 the amount of money spent by Britons holidaying in the UK is predicted to grow by 2.6% a year in real terms and the amount of money spent by foreigners holidaying in the UK is predicted to grow by 4.4% a year.
 
It adds that growing demand is boosting yields. Good quality holiday lets typically offer between 5% and 7% gross rental yields, often achieving higher yields than properties let on shorthold tenancies.
 
‘There are several reasons for the faster rebound in demand for second homes following the recent recession. Interest rates are much lower than they were in the early 1990s, which has reduced both the cost of acquiring property and the attraction of keeping money in cash. While credit has been severely constrained for homebuyers requiring high loan-to-value ratios, wealthy investors with large amounts of equity have been able to take advantage of low financing costs,’ said Liam Bailey, head of residential research at Knight Frank.
 
‘The recovery from the recession has coincided with a trend for taking holidays in the UK despite a succession of three damp summers between 2007 and 2009. The fashion for staycations, as holidaying in the UK has been dubbed, has been inspired partly by a weak pound and partly out of environmental concerns. Holidaying in the UK is now widely considered a green option, especially when compared with long haul destinations,’ he explained.
 
‘The potential investment returns from holiday lets is also a huge draw. Increased demand for self-catering accommodation throughout the year has enabled buyers to look upon a second home as an investment rather than a luxury. Investing in second homes has been made easier and more attractive by the emergence of managed holiday home developments. Owners do not have to manage lettings themselves: this can be organised for them along with cleaning and maintenance. And buyers can still use the property for their own use for several weeks of the year so get the best of both worlds,’ added Bailey.
 
The research found that two main types of holiday home have increased in popularity, holiday lodges, the upmarket reinvention of traditional caravan parks set in a managed holiday complex with facilities and the leasehold apartment set in the context of a managed holiday complex or adjoining a hotel and thus benefiting from the facilities of the hotel.
 
‘The market for both types of property is likely to grow as the supply of second hand cottages in popular locations remains constrained. In popular second home hotspots, the supply of property in July 2010 was 20% below its long term average. Meanwhile demand for holiday homes continues to grow and much of this demand is coming from buyers who previously would have bought overseas,’ said Bailey.
 
The report also points out that the tax arrangement for UK holiday homes can be more advantageous than other investment options and there is a real opportunity for developers looking to create new schemes.