Property Values and Tourist Rental Income 2004
Once it was easy to blame September 11th,
Afghanistan, Iraq and the War on Terrorism for the current malady
affecting World Tourism in general and, in particular, the Costa Blanca
However, there were no major incidents during 2004 but there is certainly
. . . but what has gone wrong?
The simple answer is
that nothing has gone wrong that has not been going wrong for at least
2 decades and the more recent events have simply accelerated the
The situation is
briefly summarised below, please follow the links for full details -
For more than a
decade the Travel Industry has addressed the ever-increasing problems of
over capacity and adversely
changing market trends.
The attack on the
WTC started a chain of
events which has led to the present travel recession and the effect
is probably not possible to reverse.
and booking procedures have become so fragmented and the discounting so
aggressive that the consumer is now
in control, i.e. it is a buyers market.
The result is that, although the number of holiday visitors to the Costa Blanca
has not fallen significantly, accommodation prices most certainly have.
Inflation in the Euro Zone
and fierce competition from emergent and
recovering resorts has further eroded accommodation margins.
Travel habits are changing.
The traditional annual 2-week family holiday is being replaced by
several short breaks. Air travel prices now encourage mid-week travel
and long weekend duration.
Off-season low fares have encouraged de-seasonalisation.
flight war and the looming
recession have to be taken into account.
So what is the solution of
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If one starts looking back to the mid-70’s a much more
logical explanation emerges which both highlights the current market
trends and provides insight to remedial action –
During the late 50’s and early 60’s
– The World Travel Industry experienced a remarkable upsurge and foreign
travel became a reality for everyone. At this early stage, for various
reasons, only packaged holidays were economically viable for most tourists
and the “villa with private pool” sector was the luxury top end of the
market and generally not available from tour operators.
During the 80’s
- A number of specialised villa companies emerged such as European Villas,
Beachvillas, Starvillas, Something Special, Jamesvillas etc. (who were
bonded by ATOL and/or ABTA) plus a number of smaller villa companies who
were agents for the ATOL holders only really provided the accommodation.
During the 90’s
- The major tour operators expanded into this self-catering sector by
absorbing these specialists and smaller companies and contracting the
accommodation directly or via rental and service agencies in the resorts.
These tour operators were also owners of various charter airlines, such as
Britannia, Caledonian, Air 200 etc.
They also needed retail outlets for all packaged holidays, both
hotel-based and self-catering and began to buy up the independent travel
agencies. Eventually we began to see Thomas Cook, Lunn-Poly and Going
Places etc. in every high Street – these owned by the major tour
these early years -
Self-catering holidays could not be arranged independently at an
economical price so the major tour operators still had the upper hand as
they were controlling the Flight Market.
However the tour operators made surplus flights available through “bucket
shop” type operators and sales of charter seats soon became a major
revenue earner for them.
At the same time we saw the appearance of villa holiday magazines, of
which “Private Villas” was a pioneer, and gradually the
independently-arranged package became a reality.
Throughout the whole period, from around
1970 until today -
Europeans have been acquiring holiday/retirement homes, mainly in Spain,
Portugal and Florida and now more than 1,000,000 Britons have a home
abroad and around 1,500,000 Spanish properties are owned by non-resident
Quite recently, James Main (ex MD of European Villas and later a director
of Thomson Holidays) made reference to these 1,000,000 holiday home in a
report, which I quote -
”The UK travel industry endeavours to arrange for
around 24 million holiday clients a year. If we assume that each overseas
property owning household consists of 4 people, who visit their property
just twice a year, it would equate to eight million people. If we further
assume that immediate friends and family account for another two holidays,
it only has to be rented another three times to wipe out the entire UK
From the period just after the recession
of the 90's until the present time
- many Europeans, firstly from Germany and then the UK, have acquired
holiday homes in the Mediterranean coast of Europe.
For the 1st 20 years of the development of Spanish resorts
progress was relatively slow and, by 1990 there were only 500,000
non-resident property owners in Spain. This is expected to reach 2,000,000
by 2010 – provided, of course, that the current developments are completed
and sold on time!
By the year 2000
- The Internet was becoming commonplace
in most Europeans homes, this provided the perfect medium to promote and
sell holiday accommodation and more and more travellers booked their
independent package online – mostly via re-emerging villa specialists and
directly with the owner.
Online booking also provided a tremendous boost for the so-called “Low
Fare Airlines” and, some considerable time before Sept 11th the
tour operators began to experience difficulties.
The 1,000’s of high-street travel agencies, which were by now owned by the
tour operators, were losing their share of the market faster than they
could react and, saddled with huge overcapacity, prices they were forced
to reduced prices to dangerously low levels.
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- The whole travel industry was entering a period of change and it was
becoming obvious that rapid adjustments were necessary to avoid a downward
spiral into recession.
Then “it hit the fan”
– or rather al Qaeda hit the World Trade Centre!
This single, devastating act of terrorism started a chain of events which
accelerated the onset of the crisis that the Travel Industry was facing
and, after 3 years led to the present situation.
The already-troubled tour operators, were faced with a greatly reduced
level of early sales due to the invasion of Afghanistan in 2002 and the
Iraq war in 2003.
Their short-term remedies were to cancel contracts and consolidate (by
switching clients into the remaining properties) and to sell surplus
holidays at greatly reduced last-moment prices..
The following year they were forced to reduce the number of holidays on
offer and cut back even further on their overseas commitments.
After 3 years of cutbacks
- The total British tour operators’ commitment in the Costa Blanca in 2004
was calculated to be only 20% of the pre-Sept 11th level.
When the travel industry is faced with dwindling demand the solution is to
reduce the supply in order to maintain price levels but the private sector
of villa owners is unable to do this as they cannot act as one body.
Many owners were forced to market their
property directly -
mainly via Internet advertising sites but even this did not provide them
with satisfactory income.
Initially Internet promotion was amazingly efficient and cost-effective.
Search-engine registration was free and, because there were so few pages
to display, “before the fold” positioning was easy.
This is no longer the case and can be demonstrated by clicking below -
Search Google for “villa holidays” – 1,550,000 results
or “holiday villas costa blanca” - 219,000 results!
or for “holiday villas Moraira” – 63,600 results!
The only way now to achieve worthwhile results is to invest heavily
in page optimisation and/or pay Google (or another search engine) for
every client that clicks through.
These are displayed as “Sponsored Results” or marked as advertisements, as
required by the Internet Authority. You will see them everywhere on the
Internet as all search-engines have affiliates who display their ads. and
receive a cut of the revenue for clicks.
Recently these costs have amounted to between £30 and £40 per holiday
So how on earth can a villa ad. site afford to charge just £100 per year
for a single villa ad. and promote it to the extent that it sells (say) 10
Neither is it within a single villa owner’s ability or pocket to promote
sales on a single villa web-site.
The Low Fare Airlines:
Overall the only ones to prosper from all of this have been the so-called
“low fare” airlines and, they have manipulated the market so well, that
they cannot even be called that any more, with August 2004 prices rising
to a stunning £320 “no meals, no frills, no client care” return fare from
Gatwick to Alicante.
MORE ABOUT – Cheap Flights to Alicante.
Finally we arrive at
the present day
and, to complete this “can of worms” we
have to consider the effects of serious inflation in the Euro Zone.
Through all of the years, good and bad, the Costa Blanca had one great
asset (apart from the sunny climate) and that was that it was cheap to
live when you got there.
Sadly now that is far from the case. Since the launch of the Euro in 2001
food and drink prices have increased by around 60% (to almost the same as
the UK) and restaurant meals have more than doubled.
Meanwhile, with a cheap US$ and affordable trans-Atlantic flights, Florida
is, once again, attracting self-catering tourists as are other non-Euro
countries such as Turkey, Croatia and the Caribbean.
The fact that the Spanish economy is heading for a serious recession is
not really important in the context of villa rentals except for possible
“manoeuvres” by the Spanish authorities.
MORE ABOUT - Recession in Spain and its effect on Property Values
MORE ABOUT - The Spanish Authorities possible reaction to recession.
<< Back to Overview >>
This is quite difficult to predict due to
the many different factors. My guess is that the overall situation will
not start to improve for a year or two but the properties on offer will
divide into sharply contrasting categories, let us say the “luxury” and
Some villa owners will react to dwindling demand by improving and
enhancing their properties as it will become a “buyer's market”
These properties will hold their rental value or just slide a little.
Other villa owners will do nothing except continue to reduce prices.
Eventually a market will open up for these basic properties from new EU
member countries as their travel industries develop.
<< Back to Overview >>
Low-fare air travel was one of the few industries to
prosper in the
post-September 11th period of uncertain economic conditions as
they continued to pick up cost-cutting corporate travel as well as the
EasyJet and RyanAir are the two giants of the low-fare sector although,
until now, Easyjet has dominated the Luton/Gatwick to Alicante route.
EasyJet reported record pre-tax profits of £71.6m
and a turnover of £552m.for the year to 30th September 2003.
However, it looks as though EasyJet will not do so well this year as it
recorded a loss of £24m for the 6 months to the end of March 2003.
Although passenger numbers were up 40%, to 9.3 million, the average fare
paid by passengers fell 10.7% to £37.45 due to "unprofitable and
So what seems to be going wrong for EasyJet?
Low-fare business has blossomed at regional airports thanks to operators
such as Bmibaby (Nottingham, Cardiff and Manchester), Flybe (Birmingham,
Southampton and Exeter), Jet2 (Leeds/Bradford), Mytravel Lite
(Birmingham), Thomsonfly (Coventry) and Air Scotland (Edinburgh and
Glasgow) as well as Britannia direct (everywhere).
of them have nibbled away at EasyJet’s dominance by offering low fares
from a more convenient airport and driving down fares. Easyjet's German
network faces even more competition and now RyanAir has announced its
Valencia slot for 2005
Additionally British Airways, Iberia and Monarch are now matching their
low-fare rivals, pound for pound, with online “less-frills” flights.
obviously cannot continue!
Online Flight Offers to Costa Blanca (Alicante or Valencia) from
London Airports for the period mid-August 2005 returning in 7 days.
Researched on 19 September 2004
this time of Iberia and Easyjet have not yet announced their tariffs
but BA and Monarch have entered the game with some truly remarkable
Saturday 20th Gatwick
Saturday 20th Luton
Tuesday 16th Gatwick
Tuesday 16th Luton
Thursday 18th Gatwick
Thursday 18th Luton
Although there seems to be a clear indication that the era of rock-bottom
fares could soon be over, early bookers for Spring and Summer 2005 can
still cash in as airlines seek to increase market shares and knock out
Cheap flights erase EasyJets profits. BBC News.
Budget Airlines. CNN News.
<< Back to Overview >>
two giants (EasyJet and RyanAir) are at each other's throats. RyanAir
recently announced their new
Gatwick to Valencia Service and EasyJet
poached their slots to Ireland. Meanwhile
Expedia are displaying only cheap flights from Iberia, British
Airways, Monarch etc. (Could this be because the low-fare giants don't pay
commission to anyone?) and the regional "hounds" are baying for blood.
My opinion is that only the early-booking consumer will win as something
has to give. The giants have lots of cash behind them so the regional
services might be the first to have problems and will belly up or be taken
Finally the two giants will call a truce or merge. I think that all this
will happen quickly, probably within 3 years. After this we will still
have BA, Iberia and Monarch etc. offering scheduled services and
“EasyRyan” will provide “no-frills” but no longer such “low-fare” flights.
Early-bird flight buyers beware!
Pay for your low-fare airline flights with a credit- (and never debit-)
card or buy it through an ATOL tour operator or ABTA travel agent - that
is if you can find one to take the risk!
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The Spanish Economy Spain's supports a
that, on a per capita basis, is 80% of that of the four leading West
Jose Maria Azner’s center-right government successfully gained admission
to the first group of countries at the launch of the Euro and has
continued to work towards liberalisation, privatisation, and deregulation
of the economy by introducing some tax reforms to that end and
unemployment fell under the Aznar administration but still remains the
highest in the
Economists fairly well
agree that the principle problems are still Spain’s archaic labour laws
and lack of skilled labour in industry and commerce. However, great
improvements in these respects have occurred since Spain’s entry into the
EU in 1986.
2.4% growth in 2003 was considered satisfactory considering the generally
faltering European economy.
In March 2004 there was
a change of government to centre-left.
With over 51,7 million tourists a year, behind
United States (41,9M) Spain is
ranked as the second major tourist destination in the world and most
come to the Mediterranean coastal regions and islands.
Also extremely important is the “Tourist Construction Industry”. Since
1990 the number of non-resident property owners has increased from 500,000
to over 1,000,000 and has been calculated to increase to 2,000,000 by
chart below shows comparative data for 2003 for various countries.
Gross National Income per capita
Revenue per Capita 2003
Points of Interest
– For anyone living in Spain neither the GNI nor the TAX are credible or
believable. The true GNI is considerably higher due to the large “Black
Economy” and a large proportion of the VAT is paid by tourists.
Spain has an excess of tourists over the resident population so the taxes
generated by tourism is extremely important, likewise the income generated
by Tourist Construction. It should also be remembered that, with a buoyant
property market, the taxes paid by buyers of second-hand property is not
insignificant. In fact it probably matters very little whether the buyer
is acquiring a new or resale property as the transfer tax is about the
– The figure shown for 2002 is based on a workforce of
around 14 m and 1.6 m unemployed. Since then it peaked in January 2004 at
12.57% (1.76 m), had dropped to 10.36 (1.45 m) in July. The month of
August saw a rise of 1,500 to 11.43% (1.6 m).
Typically the summer figures are the lowest with 11.07% (1.55 m) for July
and August 2002.
current trend would indicate a rise to 12.86% (1.8 m) by January 2005.
However, with redundancies due to tourism winding down and lay-offs in the
construction industry, unemployment seems to be working towards the crisis
level of 2 million or more. Obviously this will be much higher in the
The Spanish Economy
<< Back to Overview >>
The Tourist Construction Industry would have appeared to have been
supporting the failing economy since 2002. The largest current market, by
far, is the United Kingdom. Without going into why so many British people
are inclined to acquire a holiday home in the sun it would seem that this
will quickly come to an end. The funding for overseas properties come
mainly from borrowing against the equity on their property in the UK
and/or a cheap Spanish mortgages but now both sources are starting to dry
The Bank of England is determined to dampen the inflation in house
prices and reduce borrowing by raising the lending rate.
The Bank of Spain
has also seen the danger but cannot adopt the same measure within the
European single currency as they are committed to a base rate of 2%.
However, within the past month, their remedy seems to have become
apparent. Mortgages are still available at 70% of the valuation and, as
yet, values have not fallen but a new element has now appeared on the
valuation – the “market tendency element”, which is generally 20% minus.
The Real Estate agencies,
which have been popping up all over the UK and Spanish resorts, are now
coming under pressure. A major scandal broke with an article about Ocean
Estates International in the Sunday Times on 19th September.
The paper claimed that Ocean Estates had been blatantly ripping off
clients with unrealistic rental returns and impossible promises of short
term profits by buying “off the drawing board”.
This is not the first time that the Sunday Times has had a go at Ocean
Estates. Previously the topic was the alleged offer for sale of properties
affected by “land-grab” laws.
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believe that the Spanish Economy, especially Tourism and Construction are
heading for a serious recession. Hopefully it will not be as severe as in
the ’90, when property values in coastal areas fell by more than half. A
recent article suggests that prices will fall by up to 20 - 30% hopefully
it won’t be worse than this.
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One of the worst kept secrets about Spain is the so-called
“black economy” and one wonders sometimes how the authorities, who must
certainly be aware, show such a blatant lack of regard to the obvious
The revenue is lost in VAT (IVA), social security contributions, personal
income tax, company profits and non-resident’s rentals. This all results
from the huge clandestine industry based around self-catering tourism and
its supporting services – rental agencies, cleaners, laundry services etc.
as well as the maintenance of pools & gardens, painting and even building
improvements, extensions etc.
I have a personal theory about why it is permitted and that is that the
authorities don’t want to cook the goose that is laying the golden eggs.
The wonderful, fabulous revenue derived from tourist spending, the
employment created by a new housing boom and the 7% transfer tax every
time a property changes hands makes the revenue that could be collected
from this clandestine industry pale into insignificance.
that this is all about to change I believe (and this is only another
personal opinion) everyone concerned should take care. I believe what
happens is that faced with falling revenues, increasing unemployment costs
and pressure from trade associations (who’s members are also hurting) the
tax, social security, tourist council and other inspectors get out on the
streets and make it all good with a few hefty fines. At the same time they
satisfy the trade association lobby and shift the (greatly reduced)
business to those who pay taxes and make contributions.
may be wrong about this but we did see a lot more such activity during the
recession of the ’90.
There are sure to be those who will say that I am biased, as VHS is an
established rental agency registered with the Tourist Authority, but I can
truthfully state that this is not the case. We have been around a long
time, during good times and bad. When tourism was booming we needed more
properties (just like everyone else) gave rental guarantees to most and
had good profit margins. When times have been tough we have had all the
villas we want and just have to work harder to sell a lot more holidays at
reduced margins but no risk from the rental guarantees – its roundabouts
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book directly -
– Remember that it is now a buyers market and clients will be shopping
around for the best value. They will be looking for newly-built or
recently modernised properties with vital items such as modern
furnishings, a washing machine, fully-fitted kitchen, TV with CD player
and/or satellite dish, air cond. or ceiling fans and central heating
(during the winter).
Other items, such as a dish-washer, security alarm, secure walls and
gates, 100% private pool and/or sunbathing area, heated pool etc. will
make a considerable difference to your overall return.
If your property is old, has sparse mod.cons. and you have a tight budget
- then do not try to do it by halves! It is better to make the rentals
- Early bookings are all important, especially for 2005 due to the
flight-cost situation and you might have to sell some weeks at the last
Set a fair price for your villa by researching tour operators and agencies
in the area (if you have not already done so).
Advertise this as the price and show the discount for early-bookings to
start. Don’t even suggest last-moment reductions at this stage and always
state the date that the early-booking offer ends.
As soon as this period ends then start to sell at the full price.
When you get to 5 weeks before start your last-moment discounting. Typical
discounts for 2004 were from 20 – 60% reduction.
– The writer does not believe in cutting
back on these just because the market is depressed but you could leave
service options open to the client. Receiving a key through the post is
considered by some as the worst aspect of renting directly and this is no
longer necessary. There are agencies everywhere who will hand over keys
and maps or provide key safes for an annual rental.
If you use local “clandestine” services you should find that, from now on,
local agencies are not that much more expensive and provide a tax
advantage as their costs are deductible.
Additionally, many of them provide “Joint Venture” rental contracts – so
you could have your cake and eat it as well!
– The returns on magazine advertising
are loosing ground in favour of the Internet but even this medium is not
as economical as it was. Beware of the sites that offer a really cheap
yearly ad. rate and/or commission.
Check out their performance by typing into a search engine the keywords
commonly used by browsers e.g. “villa holidays” combined with the resort
name. Try these two –
Their ad should appear on the first page although some clients will search
up to 3 pages. If you cannot find them easily then your clients won’t
If you do find them then check if it is a “Sponsored Listing”. This means
they pay for clicks.
Click through to their home page and check their Google Rank. For a
localised site 4 is the best that they will get. If they don’t have a
Google Ranking or if it is low then it means that they pay little
attention to page optimisation and or they it is a new site and, as soon
as they stop paying for clicks, they will disappear altogether.
If you need a Google Toolbar to search or see the rankings then
book via an agency, villa rental company or tour operator –
the above rules apply just the same!
Either way you should study the present situation regarding the Spanish
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