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A real estate investment in your favorite holiday destination is a good way to enjoy a holiday as well as earn a steady return on your dollars. Leasing out your holiday home to a steady flow of vacationers not only assures a rental lease but also the benefits of steady capital appreciation over time.
All this unraveled when borders were shut in the aftermath of the COVID-19 pandemic. Suddenly everyone was cooped up inside the house and working from home. Two years of living this way has only increased the longing to travel again, to meet friends, and to create new experiences. Many people managed to save more as unnecessary spending on travelling, eating out and watching movies was cut. Employees and companies discovered that remote work was possible without affecting productivity.
When the Corona vaccine arrived and borders started to open up, travel saw a big upsurge. It is only a matter of time that along with travel, interest in real estate in popular holiday destinations also picks up. There are many benefits of investing in a holiday home, including:
• Unplanned vacations become easy
• There is no need to scour new holiday destinations
• Returns can be maximized by renting out the property
• Property value appreciates over time
Internet penetration has steadily improved all over the world, paving the way for remote work. Professionals who have a flexible work life are also considering staying in their holiday homes for a longer duration where they can work during work hours and relax away from the city. So now a vacation home doubles up as a second home to live and work from. Many countries are now wooing digital nomads or global citizens into their territories as these highly skilled workers directly contribute to the growth of their economies.
What makes for a good holiday home destination?
The idyllic home away from home sounds like a dream come true, but there are some basic factors for you to consider before you hand over the pot of gold to the property owner. Here are some factors to keep in mind:
Connectivity: Is it easy to reach the town or city where you are looking to buy a holiday home? Is there an airport or train station close by? Chances are that if the location is super elusive and difficult to reach, the novelty may wear off sooner than you think. Plus there is no way of knowing if the tourist footfalls in such a location will grow, which could affect rental yields if you are looking to rent out your property.
Infrastructure: Are the road, telecom and health infrastructure in the neighborhood satisfactory? Coming from a metro city, investors are habituated to such perks. The absence of these or their limited availability may not become a big issue if you plan to stay for a short while. But if you plan to stay for longer periods and return annually, these comforts could become deal breakers.
Maintenance costs and taxes: Do factor in the cost for the upkeep of the property whether you hire a management service or a caretaker. Rental income from letting out your vacation home may be taxable which makes it imperative to make it part of your income tax returns.
Familiarity: Before you make the down payment for the vacation home, do ensure you have visited the place several times and truly like the locations and its facilities. Take the time to know the destination, the things you like and dislike before you go ahead with the investment.
Is buying a holiday home abroad too ambitious or risky?
After considering the pros and cons of investing in a vacation home, the next question is what is the right destination. Now, this is a personal choice. Some people love secluded beaches, some like the cool mountain breeze while others like cosmopolitan cities with a thriving nightlife. There may be real estate investment options in all these locations within the country that suit your taste and pocket. But should you consider a vacation home abroad? Does this sound too risky and expensive?
If you like holidays abroad there is no reason why you should not consider a vacation home abroad. Some locations have their benefits to boot. Here are a few:
Reduce sovereign risk: The example of Afghanistan is fresh in our memories. Regime changes can bring unforeseen risks to your business and living. Having a vacation home abroad could help you reduce your country risk, providing a getaway for some time to plan your next steps, and then decide where you want to work, do business or live.
Competitive prices: Real estate prices in Tier 1 cities in India or popular holiday destinations are not always affordable or cheap. You may be able to snag a property at a competitive price in some locations abroad which may also boast of a higher rental yield, which in India averages around only 3 per cent.
Longer visas, residency permits: Investment in real estate in some destinations abroad can help you apply for a resident visa or a visa for a longer duration. This may become beneficial if you want to spend more time in your vacation home.
Time zone benefits: Remote work has given us true freedom to live and work where we want provided the destination has basic telecom and connectivity infrastructure. But if you work India hours, a holiday home in the US will have you working at night which may not be sustainable in the long run. Some short-haul popular destinations offer world-class infrastructure, connectivity and a compatible time zone as well.
Holiday homes in Mauritius, Sri Lanka or Thailand
These countries are popular tourist destinations and there is a good chance that you have vacationed in them in the past. Here is a lowdown on the vacation home options investors can consider in these countries.
Mauritius
Blessed with sunshine all year round and a coastline spread over hundred kilometers, Mauritius remains the ideal place to invest for a home. Besides, the development of good-quality, reliable, sustainable and resilient infrastructure has positively impacted on the development of the real estate and hospitality market. With a more liberal property market, Mauritius has been increasingly popular with the internationally mobile community comprising HNWIs and influential business personalities.
Mauritius has a plethora of opportunities to invest in the real estate and hospitality sector. As such, non-citizens are allowed to acquire residential property in Mauritius under the different schemes approved and managed by the Economic Development Board (EDB).
A non-citizen can choose to acquire residential properties like villas, townhouses, penthouses, apartments, duplexes and serviced plots of land in existing projects under the different schemes that have been put in place.
(i) Integrated Resort Scheme (IRS), Real Estate Scheme (RES): Residential estates developed under the IRS offer a wide variety of world-class amenities for leisure, entertainment and wellness such as golf courses, marinas, beach club, clubhouses and wellness centers that surround the residences and provide an exclusive resort experience.
(ii) Property Development Scheme (PDS): Projects developed under this scheme provide outstanding luxury residential properties of high international standards together with high-quality open spaces, high-class leisure and recreational facilities as well as day-to-day management services.
(iii) Invest Hotel Scheme (IHS): The IHS allows a non-citizen investor and individual guests to become an owner of exclusive hotel units located in Mauritius. A non-citizen can acquire a room (or a hotel unit) in new or existing hotels approved under the IHS. The owner thus gets a privileged access to all the facilities of exquisitely furnished luxury resort hotel(s) with amenities like F&B, fully serviced spas and fitness centers, resort-style pools.
(iv) Smart City Scheme (SCS): Smart Cities, revolving around the work, life and play concept, are large-scale mixed-use developments in cosmopolitan conurbations with smart technology and pioneering innovation at their core. Under the SCS, residential estates are embedded within an integrated masterplan fostering a sustainable and happier lifestyle with ample space and opportunities for businesses and multiple leisure amenities, while living next door.
Also, non-citizen holders of residence permits, occupation permits or permanent residence permits can acquire a plot of serviced land for the purpose of building a residence, in a residential development located in a smart city, approved by the EDB.
(v) Senior Living Residences: This comes in the wake of the recent law which will allow expatriates above fifty years to stay in and buy or rent purpose-built retirement residences. Senior living essentially refers to homes that cater to adults aged over fifty who are looking to live independently in a peer environment. Such projects usually provide facilities for recreation and socializing, including a clubhouse, health club or gym, facility management services, focused on the needs of the elderly.
(vi) Ground +2 Apartments: Foreigners are allowed to purchase apartments in developments outside of the approved residential schemes. The apartments should be located in condominium developments of at least two levels above ground (G+2) and the purchase price of an apartment should not be less than MUR 6 million or its equivalent in any other hard convertible foreign currency.
Easy connectivity and visa requirements for Indians
Mauritius is a small island of 2,040 sq km and has excellent road connectivity with the airport from anywhere on the island.
The tourism hub is in the north around Grand Baie, which has the greatest concentration of hotels, beaches and entertainment. Different parts of the island have their unique offerings which can be explored by investors.
The following types of visa are available:
(i) Tourist and Business Visa: Indian nationals travelling to Mauritius can opt for a tourist or business visa which are issued on arrival. The tourist visa is valid for 180 days in a calendar year while the business visa allows for a stay of 120 days in a calendar year with no more than ninety days allowed on first arrival.
(ii) Premium Visa: Those wishing to stay for more than 180 days may opt for the premium visa which has been launched since October 2020. This visa aims at encouraging foreign nationals to come for a long stay as a tourist, a retiree or a professional willing to come with his/her family and work remotely from Mauritius, in a COVID-safe destination. It allows a non-citizen to stay in Mauritius for a period of one year with an option to renew. Applying for the premium visa is a simple online process with no processing fee applicable via the link: Legislation (edbmauritius.org)
Opening of borders
Mauritius has adopted a phased opening of its borders. The first phase which started from 15 July and ended on 30 September 2021 has allowed fully vaccinated travelers to enjoy a resort holiday on the island with a negative PCR test on arrival.
Having achieved herd immunity with 82 per cent of all adults now fully vaccinated, as from 1 October, Mauritius will enter the second phase with a full reopening of its border, welcoming both vaccinated and non-vaccinated travelers.
Vaccinated travelers will be able to enter the country without restrictions, as long as they have a negative PCR test taken seventy-two hours before departure. They will be required to take a PCR test on arrival at the airport (day 0) and day 5 of their day. Upon presentation of a negative PCR test on day 0 they may explore the island. Unvaccinated travelers will need to quarantine for fourteen days in their hotel room (as in the first phase) before being allowed to roam around the island upon presentation of a negative PCR test on day 14.
Sri Lanka
Sri Lanka is an island located just south of India and known for its rich cultural and climate diversity, exotic jungle locales, and picturesque paddy fields which are the main drivers for the hospitality industry. Not to forget the pristine beaches of the island. Thanks to low interest rates, a depreciating currency and a variety of real estate options from villas to condominiums, Sri Lanka has become a hot destination among Europeans, Australians and Kiwis for vacation homes. The most popular areas of interest are around Colombo, beachfronts and hill country properties especially IN areas like Galle, Hikkaduwa, Beruwala, Tangalle, Bentota, Beruwala, Wadduwa, Negombo, Kalpitiya, Kandy, Nuwara Eliya.
Currently, foreigners cannot buy freehold land in Sri Lanka directly. They can acquire land on a long-term leasehold basis or establish a Sri Lankan company to acquire the property with a local trustee holding at least 50 per cent of the shares. Another affordable option is to purchase an apartment on the fourth floor (or above) of a condominium project
High net worth individuals are investing in boutique hotels in Sri Lanka, which they use as a vacation home only when they visit the country. Otherwise, all year around these properties function as boutique properties which generates a return on investment and helps manage operating costs.
Colombo is the most favored location and offers many new large-scale real estate developments like Sapphire Residences which comprises 132 luxury sky mansions and penthouses, with over 40,000 sq ft of private world-class leisure amenities. Port City, Colombo, is one of the biggest projects in the neighborhood with a total projected investment of over USD 13.5 billion.
Rental returns on apartments and commercial real-estate is about 6-8 per cent. Capital appreciation is huge in Sri Lanka. However, for hotels and boutique properties, the return on investments in much more.
For investors looking at a residence by investment plan, Sri Lanka offers the Resident Guest Scheme Visa program (RGSVP) which is open to all foreign nationals. The RGS investor category visas issued will be valid for five years and can be renewed thereafter. The scheme requires investors to contribute to the economic and socio-cultural development of the country. Investors can apply in two categories:
1. Investor category: Under this scheme foreign investors must make the following investment:
Bank account deposit – USD 250,000
Economic investment – USD 250,000
For additional family members, the investment increases to USD 35,000
Funds can be deposited in a special account in any commercial bank approved by the Central Bank of Sri Lanka in any convertible foreign currency.
The economic investment can be made in the following ventures approved by Board of Investment: start-up ventures, existing or new companies, shares listed in the Colombo Stock Exchange.
2. Professional category: This category does not require investment but $2000 per month for expenses and $1000 per month for every family member has to be deposited in special bank account for foreigners. This category also suitable for retirees.
Sri Lanka permits dual citizenship and foreigners can apply for citizenships after ten years of living in the country.
Thailand
When it comes to a foreign holiday, many Indians would have been to Bangkok. In fact, Thailand was in the top three countries for Indians to travel to along with UAE and Maldives in a survey conducted by Thomas Cook recently. When it comes to buying real estate, it is no surprise that Indians are on top of that list as well.
Holidays one can understand, but why are they buying real estate here? There are number of factors that make Thailand a hit destination:
1. Short flight time: A travel time of just three to four hours with inexpensive airfare from every major Indian city makes it very convenient even just for long weekend trips. The most common point of entry is Bangkok, from where it is easy to connect to any other part of Thailand either with by flight or simply by car.
2. Easy visa entry: Thailand’s visa on arrival is hugely beneficial for Indian travelers. During pre-Covid era, the Thai government even had discussions to include India in the list of visa-free countries. If this discussion continues, travelling to Thailand will become super easy for Indians. At this point in the Covid era, visa on arrival is on hold but is expected to restart as soon as tourism in general picks up again.
3. Numerous investment options: The variety and price of properties available – from economical to luxury, from condominiums to villas – in every Thai tourism destination is unmatched and suits every pocket. Prices are relatively low. Thailand property prices are more attractive even vis-à-vis Goa. We can break them into the following main categories:
(i) The first price bracket ranging between 50,000 and 150,000 USD are the ones selling the most; options are plentiful for this price range.
(ii) Second bracket ranging between 150,000 and 300,000 USD offers a wide variety especially for upper mid-income people.
(iii) Third bracket from 300,000 USD up to 500,000 USD caters to the luxury market for high-income people and anything more than 500,000 is for a niche market.
4. Robust returns: Guaranteed rental returns (GR) have always been high on investors’ wish list and there are projects that assure a minimum rental return over a set period. Especially now, during the Covid era, customers should do their proper due diligence and question the authenticity of the offer keeping in mind that what sounds too good to be true probably is. Genuine RGs offered are generally between 5-7 per cent over a period of 2-3 years.
As far as property appreciation is concerned, it depends on location, quality, age of property, size, etc. Buying a new ready-to-move-in property in a reasonably good location, an annual appreciation of 3-5 per cent should be a good target to achieve.
Now, together with RG and appreciation you are looking at 10 per cent return on investment, which is pretty hard to beat in a low interest rate environment.
Rental income in Thailand is taxed at 15 per cent but it is hardly enforced unless you report it. Thailand previously didn’t have annual property tax but this was introduced recently. However, at just 0.02 per cent of government appraisal value, which is generally much less than the market value, this is hardly a cost to consider given that a property valued at 100,000 USD entails an annual tax bill of only 20 USD!
Personal income tax is hardly ever enforced unless you report it. But even if you do, income of up to 5,000 USD is not taxed, after which small categorial increases takes place.
Thailand does not have any residence permit programmed for property buyers but there are visa options for investors looking to stay for longer duration.
(i) Retirement visa: This is the most common, convenient and cheapest visa but it is only available for those over fifty years of age. It is renewed every year. The only requirement is that you have 800,000 Baht (25,000 USD) in your Thai bank account to show at the time of applying for it. Or, you have provable monthly income of 65,000 Baht (2,000 USD) or more.
(ii) Thailand Elite Card: This is an alternative option which you simply purchase, and it gives you up to twenty-year visa with fees starting from 600,000 Baht (20,000 USD).
Investment visa programmed for property buyers of more than 10 MB (350,000 USD) is also available, but since it gives you a onetime five-year visa, it is not a very popular option.
Is tourism picking up post Covid?
Tourism in Thailand is expected to bounce back quickly, but like everywhere else, certain areas will recover faster than others. Worst hit are the major tourist areas which were mainly dependent on foreign travelers, such as Pattaya and Phuket. Recovery time will be long in these places. Smaller areas and those not heavily dependent on foreigners are quick to bounce back and even flourish at no time as they weren’t severely impacted in the first place.
Now in the end here are a few tips from insiders:
1. If you are looking for safe investment areas, try to look for new and/or smaller locations which are within easy reach of major areas such as Bangkok or Pattaya. These areas have seen a steady flow of domestic travelers during Covid times, which has kept all businesses up and running.
2. Many developers continue to offer great deals to spice up their cash flow due to Covid downturn. Having said that, these great deals may soon be history as Thailand is opening its borders again. If you are ready to buy, wait no longer as now is your golden time to find your investment and/or second home.
3. If you are looking for rental guarantee schemes, try to ask for an additional discount instead. By getting reasonable discount and placing your unit under general rental management scheme will probably give you better returns in the end. To top that off, you will have safe investment and no limitations for ‘owner stay’ days.
A holiday home is a surefire way to make your money work harder than you, whether it is by way of rental yield or property appreciation or savings on huge hotel bills when you travel. Investors are spoiled for choice. So make your choice count.
