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The lost £4 billion in UK overseas property

Introduction

The growth in the overseas property market has meant that there are now, depending on which figures you choose to subscribe to, anywhere between 500,000 and 5 million homes abroad owned by the British population. The growth in the marketplace has been such that several industries have grown on the back of this boom in foreign real estate. Before it was common to retire to Spain or Australia, how many pet relocation companies were there in the country, for example?

One of the other results of this growth in the overseas property market is the fact that many people who have bought in another country now see themselves as investors, and their properties as commodities to be bought and sold, rented and maximized. Rental of overseas homes has gone from being a nice added benefit for someone who has a property they use only a few times a year, to a fully-grown business that is in some cases the sole reason to buy a particular property.

While these professional landlords still do not make up the majority of the marketplace in overseas property, they are growing in number. For most people who have scrimped and saved, or taken out a second mortgage, in order to be able to afford their dream of a property in the sun or in the snow, the idea of renting their overseas home out to other people when they are not using it is something that usually only comes along later, and even then many people never get around to doing it. This leaves a huge amount of property in the most popular destinations for overseas property buyers and British tourists that is left empty in the height of the tourist season.

The lost £4 billion

A recent survey of the market by specialist holiday rentals website Holiday Lettings has shown that there is a potential of up to £4 billion in rental income that is tied up and not used in the overseas property that has already been bought by Britons. While this is clearly a huge amount of money, the figure has been calculated with some care and attention, rather than just taking the highest figures and applying a simple formula.

Firstly, the size of the self-catering, independent holiday market is important – there is no point in looking at the amount of potential rental income that is being ‘lost’ if there is no market there to soak up the ‘extra’ properties. According to statistics from research company Mintel, the self-catering holiday business has grown in size and number of trips by 22 per cent in the past five years. The report suggests that the business will continue to grow to account for over 34 million trips by 2011.

Next, one has to consider the number of properties in the market, and get an accurate figure for it, as well as how many of those properties are already being rented out to the holiday home market. Figures for the ownership of property overseas vary wildly, and because of the disparate nature of the sources of information to be collected, it is very difficult to get an accurate measure. In this case, Holiday Lettings have used the figure generated by the Office of National Statistics (ONS), which state that some 850,000 Britons own property overseas. Some would see this as a conservative figure, but for the basis of this estimation, it seems a reasonable start.

Next comes the amount of property that is currently used as rental beds for the self-catering holiday industry. Holiday Lettings uses another Mintel survey to reveal that only 20 per cent of overseas property owners actually rent out their property when they are not using it themselves, meaning that up to 80 per cent of the total overseas property bought by British buyers is never used to generate rental income. According it the statistics laid out above, this amounts to 680,000 properties overseas owned by Brits which are never used for renting.

The company has also been careful not to overestimate the amount of rental that will be received annually for the properties in question. Taking their own research as a basis for calculating the potential rental lost by UK buyers, Holiday Lettings have used the ten to twelve weeks rental that their own customers receive on average across the website.

This leads to the figure of more than £4 billion potential revenue lost in the existing overseas property inventory owned by British people. Ross Elder, managing director of Holiday Lettings says: “With average annual rental income for a mixed use investment ranging between £7,000 and £18,000 per annum and the demand for self-catering holidays on the increase, there is a fantastic opportunity for owners of holiday homes to reap the rewards of the healthy market.”

Limitations

The most important thing to consider in light of what seems like a remarkable figure for the ‘lost’ rental is whether or not having so many more properties available for rent on the market would result in oversupply of properties severe enough to collapse the yields for owners. The self-catering holiday market is due to grow significantly and the death knell of the traditional package holiday was sounded some time ago with the introduction of low-cost airlines, but if too many more owners were to put their properties overseas on the rental market in given area there would be some oversupply issues and yields could drop.

The simple fact is that many owners will never put their overseas property onto the rental market. People have the preconception that their possessions will get used and broken by other people, that the property will not feel like ‘home’ to them anymore, or worse, that they will be victims of theft as a result of letting their property on the tourist market.

Many people will, on the other hand, allow friends and family to use their property overseas for a nominal or token return to cover their most basic costs. Even charging these guests a rent that is half of what the local going rate is would mean that the owners are at least recognising the potential of their property.

Why renting will grow

Holiday habits have changed significantly in recent years, and many of us are now accustomed to searching the low-cost airline websites not only for the best fares, but for the cheapest destinations to visit. In this way, the low-cost carriers have fundamentally changed the way in which holidays are booked and destinations are decided upon. A generation ago, people would not have been able to consider the possibility of visiting destinations that are not established holiday resorts nor booking each element of their holiday separately. Now this is virtually the norm.

The increase in independent travel dovetails well with the increase in holiday home ownership. All that remains to be seen is whether or not these two industries continue to work in harmony.

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