Investing in holiday properties

In times of rising inflation, it is good to find the right way to protect and multiply your savings. There are many options for increasing capital, such as purchasing of government bonds, shares on the Stock Exchange, mutual funds, setting up deposits and savings accounts, investing in gold or real estate. The tangible nature of property has the advantage over other forms of capital investment that it gives a sense of real ownership. In the case of rental properties, it is additionally possible to earn a passive income. Therefore, investing in real estate is a popular method of saving.

There are many ways to make money from real estate. They differ, among other things, in the rate of return on investment or capital investment risk. The most common forms of investing in real estate are land purchase, flat for rent, business premises and, more and more popular, house flipping (purchase of an apartment at a bargain price for renovation and selling it with profit after renovation), second home (purchase of a second apartment, which can be made available to tourists for a fee during absence), condo-hotel and aparthotel (the purchase and rental of a room or an apartment without the need for management, as all maintenance and tenants search activities are performed by the operator).

Buying a flat for rent has many advantages, including:

• securing of the capital,
• low risk of losing the invested money,
• possibility to benefit from tax reliefs,
• the possibility of using the property as collateral for a mortgage loan for the purchase of another property,
• high chance of a return on invested capital over time,
• generating passive income, i.e. steady cash inflow from rent.
• It should not be forgotten that investing in rental properties also has some disadvantages, such as:
• the need to have large financial resources for the purchase of property,
• cyclical additional fees, including rental tax and so-called hidden costs (costs related to interruptions of demand in short-term rentals or costs of servicing and consumption of the flat),
• long payback time,
• the risk of losses associated, for example, with rising interest rates on loan-financed properties.

As owning a flat is often a secure investment, many investors choose to buy holiday flats. Such a property entices not only with the anticipated profits, but also with the possibility of using it as owners.

When purchasing a holiday apartment that is expected to generate a reliable income, particular attention should be paid to its location. Each place is characterised by its own seasonality. Seaside and Warmia and Mazuria are visited by tourists mainly in summer. The season in seaside and lakes resorts lasts mainly from June to September and holiday flats remain empty for most of the year. Slightly shorter, but more frequent holidays are planned by tourists in mountains. Resorts located in the south of Poland are visited both in summer and winter. On the other hand, large cities are characterised by less seasonality, as they are frequented regardless of the weather.

The attractiveness of the region is very important. Tourists usually expect close proximity to the beach, ski lifts, hiking and cycling trails, green areas, monuments and attractions in the area and restaurants and shops. When choosing the perfect place to buy an apartment for short-term rental, it is worth paying attention to the amenities available in the facility or its vicinity, such as a swimming pool or a children’s playground.

When considering the purchase of a holiday property, it is important to choose the type of property – whether it should be an independent holiday apartment (managed personally or by an external company), condo-hotel or aparthotel.

Independent apartments are a good investment for people, whose priority is their own place where they can spend their holidays, rather than earning a rental income. In this case, the investor decides on his own about interior fittings, has an impact on the costs of servicing the premises and the amount of rental charges. Additionally, he can use his property at any time.

A condo-hotel is a hotel facility consisting of legally separate self-contained commercial premises. Flats generally consist of 1-2 hotel rooms with a bathroom. The option with a kitchenette is rarely available. On the other hand, in case of aparthotels, the investor has ownership of the entire apartment. From the end-user point of view, the mentioned types of objects are the same, as they are aimed at people looking for short-term rental properties. Both objects are managed by specialised companies that run the reception, as well as service guests and premises. For the services they provide, they receive part of the rental income, while the rest of the money goes to investors. If you want to invest your capital in a condo-hotel or aparthotel, it is worth carefully checking the operator of the selected object and the provisions of the contract.

Buying a property in an attractive location is associated with a very large expense. Prices of premises in prestigious seaside resorts such as Sopot, Hel, Gdańsk, Gdynia, Władysławowo, Międzyzdroje or mountain resorts such as Zakopane, Białka Tatrzańska, Szczawnica, Karpacz, Szklarska Poręba, are the highest and amount to the rates in the largest Polish cities. The most expensive real estate can cost even tens of thousands of zlotys per square meter. At the same time, the profitability of the most attractive apartments, finished to a high standard, can reach up to 8%.

The very high prices of flats in Polish resorts are due to the specific nature of this market. A significant part of the investment is characterised by a high standard of an apartment and a prestigious location, which affects the prices for accommodation. The final price per night also depends on factors such as the amenities available or the number of beds. On average, the cost of renting an apartment is several hundred zlotys per night.

According to the Central Statistical Office, until 2019 there was observed a steady increase in the number of hotel guests. In 2019, the number reached a record of 23.5 million tourists. Due to the outbreak of the coronavirus pandemic and, consequently, the introduction of lockdowns, during which hotel operations were severely limited, in 2020 there was decline of 53%, to 11.1 million people. In 2021, the number of hotel guests amounted to 14.4 million, despite the difficult beginning of the year resulting from the shortened winter holidays and the introduction of maximum hotel occupancy restrictions. Therefore, when comparing the year 2021 to 2020, we can see 29% increase in the number of tourists. However, it is not yet at pre-pandemic level.

GRAPH 1. NUMBER OF HOTEL GUESTS IN POLAND (mio) 2015-2021

source: own study based on the Central Statistical Office data

When considering the decision to invest capital in a holiday apartment, it is important to bear in mind that investing in holiday properties involves considerable risk. The best example are the events of recent years related to the coronavirus pandemic. The consequences of these events can be seen, among other things, in the above-mentioned decrease in the number of hotel guests. Nevertheless, the holiday real estate market is constantly evolving.

According to the report “Hotel and condo-hotel market in Poland 2022” prepared by the Emmerson Evaluation, the supply of investment apartments in condo-hotels and facilities with holiday flats until the end of the first half of 2022 was, respectively:

• in the seaside areas: 18 451 apartments,
• in the mountain areas: 12 498 apartments,
• in the Warmia and Mazuria: 964 apartments,
• in the agglomerations: 8 744 apartments.

According to the forecasts contained in the aforementioned report, by 2024 the number of investment apartments will increase by 13.9% in the seaside area (2 556 flats planned to be built), by 20.4% in the mountain area (2 555 flats planned to be built), by 27.5% in the Warmia and Mazuria (265 flats planned to be built) and by 12.2% in the agglomerations (1 066 flats planned to be built).

Most often, real estate increases in value over time, so it seems ideal for capital investment and multiplying savings. However, it should be remembered that such investments are exposed to various unknowns and risks. The decision to invest in a holiday property should be preceded by a thorough analysis of the situation in the region, as well as one’s own needs and possibilities. Only on the basis of such an analysis is it possible to evaluate the profitability of the investment.

Monika Kubisz
AMRON System Coordinator