First published in the Financial Times on 12th August 2014.
Rising wealth has created demand to own a place in the sun, snow or countryside
When entrepreneurs sell their companies, the first big purchase they make is usually a second home. And now is the time of year when those who can migrate to their holiday retreat, be it in Cornwall, Saint-Tropez, Martha’s Vineyard or the Hamptons.
But do such vacation residences make any economic or emotional sense?
I estimate there are at least 15m second homes around the world: for starters, there are 3m in the US and another 3m in France. The latter has some of the highest concentration of holiday home ownership per capita in the world – estimated at more than one in 10 households.
In Britain there are fewer than a tenth as many holiday homes, but many hundreds of thousands of British people do own homes overseas. Rising wealth has created demand from the newly rich to own a place in the sun, snow or countryside.
In strict financial terms, unless you use your home-from-home a lot throughout the year, the running costs will outweigh the price of equivalent rented accommodation. There are property taxes, utility bills and upkeep, insurance cover, possibly gardening or service charges, and so forth. Taxes, fees and furnishings incurred when you buy the property all add to the initial outlay. In addition, there is a lot a work involved in taking care of a property – as I know, from personal experience.
But property can be a profitable investment and, like many asset classes, vacation homes in certain locations have appreciated markedly in recent times.
An entrepreneur pal claims that his Swiss ski chalet has risen threefold in value since he bought it a decade ago. But, in contrast, many Mediterranean resorts have seen the price of homes slump over the past five years. I now reckon that countries such as Spain, Portugal, Greece, even Italy and France offer the best value holiday homes, with prices perhaps a third cheaper than in the past. They have plenty of highly motivated sellers.
Many owners rent out their second homes to help defray the overheads. I prefer not to do this, since it can be a hassle and will have tax consequences. Instead, I find that one of the joys of having a holiday home is the opportunity to lend it to family and friends. Some owners feel that their home is too precious to allow visitors to stay when they are not around, but I prefer to see homes being used and appreciated.
There are extremes of home ownership. I know of a billionaire whose portfolio stretches to seven substantial houses, a staff of more than 100, and annual running costs of many tens of millions of dollars. This approach seems to me to be more of a burden than a source of pleasure, which surely defeats the entire purpose of the exercise.
Holiday homes are no use to anyone who wants to travel to different locations on every trip. But for those with a young family there are the advantages of convenience and familiarity, and the possibility of making regular friends and becoming part of the neighbourhood.
Bigger properties can be marvellous places to welcome guests and host house parties. These are the sort of intangible benefits that persuade so many buyers to take the plunge and purchase a second home. For those who want to avoid the irritation of repairs, there are timeshares or private residence clubs.
The anti-rich brigade attack second-home owners as selfish, and want to increase their taxes. But most second homes are located in rural or resort destinations where tourists and part-timers contribute vital income to the local community. If they are driven away, who will replace them to live there full-time, and what will they do for employment?
Tycoons who enjoy marine activities might prefer to acquire a yacht or something similar. But serious boats tend to be exceedingly expensive to run and are certain to depreciate, and so cannot compare to the utility that a house offers.
The pride of ownership, the memories associated with a specific dwelling, the satisfactions of cultivating a country garden, an enduring asset – apart from giving it away, I can’t think of a better use for the cash.