Second-home buyers looking to experience "la dolce vita" in the Italian Lakes region or another classic European vacation destination, such as the south of France, should be sure they’re in it for the lifestyle, not the return on investment, experts say.
That’s because although prices in these old world luxury European hotspots finally bottomed out after taking a precipitous dive in 2008, and the market is more stable now than in recent history, the current climb back up is practically nonexistent. And even though there is increased buyer interest and more transactions taking place in these areas, experts say, there’s a surplus of luxury stock to work through, which means prices aren’t likely to significantly rise anytime soon.
"Cannes investments are never flip properties," said Mirka Mikleticova, a sales negotiator with Beauchamp Estates in the south of France.
"While in London you can buy off-plan and flip it in six months," she said, "in Cannes, you need to hold a property for a minimum of five years—especially now, when prices are quite stagnant."
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Then, when someone decides to list the property, she continued, it’s not uncommon for it to sit on the market for several years, and go through several price reductions before it finds a buyer. "In London, if the apartment is on the market for more than a couple of months, that could be a sign of a problem," she said. "But in Cannes, a villa might be listed for three years, and no one bats an eye."
The same is true of properties in Lake Como, Venice, prime Tuscany, and other areas in the south of France, such as Monaco, experts say.
However, there are plenty of reasons buyers might want to purchase a property in one of these areas with no plans on selling anytime soon. These include lifestyle considerations, such as beach- or lake-front access, proximity to fine dining and socializing, privacy, as well as inclusion in a larger real estate portfolio.
In the meantime, second-home buyers can bring in some solid rental income, particularly if the property is centrally located and offers features that international visitors desire and are willing pay a premium to experience on a rental basis.
This Lake Como villa comes w/ a 2.5-acre garden, an aviary & an icebreaker should you ever meet George Clooney https://t.co/ypw8PV5wRb pic.twitter.com/rJJlSj1CYR
— Mansion Global (@MansionGlobal) April 15, 2017
Lake Como: A lakefront property in a celebrity-friendly locale
When George Clooney bought a Lake Como villa in 2001, he upped the profile of the area, which is conveniently located about 45 minutes from Milan and near the Swiss border.
"Lake Como was already on the map," said Amy Redfern, a London-based senior negotiator with Knight Frank Italy. "But he helped make this area more of a draw for celebrities and high net worth individuals," who continue to come for the Michelin-starred restaurants and tranquil location.
Today, Lake Como is the first location in Italy to start the slow climb out of the pricing slump that leveled values of luxury Italian properties starting in 2008.
Between the boom years of 2000 and 2008, Ms. Redfern said, Italy saw price increases on prime properties by almost 40%, which was followed by a decline from 2008 to 2016. "We really feel like Italy has hit the bottom of that curve," she said.
This belief is supported by data from Knight Frank’s Italy Insight 2017 report, which showed prices in Lake Como increasing by 1.2% in 2016 for prime properties over €1 million, after a .2% increase in 2015, Ms. Redfern said.
"We expect that 2017 will show another 1% or so growth on top of that," she said, noting that those figures will be available early next year.
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Lynne Davie, a Beauchamp Estates broker who sells properties in Florence and Tuscany, as well as the Italian Lakes region, added that, "while we don’t expect things to return to 2008 levels, this will be a much healthier and more realistic market, that grows steadily, without exaggeration."
Even though prices are increasing, both Ms. Davie and Ms. Redfern noted that potential buyers interested in the Italian Lakes region should view property purchases as a long-term investment, rather than something they can flip.
"You want to hold these properties for at least five years," Ms. Redfern said, "and make purchase decisions based on lifestyle factors."
Properties with the best potential for rental income have direct access to the lake, Ms. Davie said, but are slightly raised or set back so that passersby on the water can’t look right in. A boat loading area and dry and wet boat storage is also important, as is a swimming pool at the highest price levels, which range from about €2.5 million (US$2.899 million) to well over €20 million (US$23.1 million), Ms. Redfern said.
When it comes to location, Bellagio is a favorite area, as is Laglio, where Mr. Clooney owns a property, Forno and Menaggio.
Everyone also wants a villa with historical features, surrounded by natural beauty, with privacy, Ms. Davie said. But because there’s such little availability in the Lakes Region, interested buyers might have to wait for the right property to come along.
"These are second homes, third homes or portfolio buys, so there’s no pressure when it comes to the time frame," Ms. Redfern said. "I have worked with some buyers for up to five years to help them find the right house."
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Venice: Canal access and outdoor space
Ann-Marie Doyle, the director/owner of Sotheby’s International Realty in Venice, said that the Venice market is different from anywhere else in the world. "People who buy in Venice are specifically interested in Venice—not a country home or a lakeside home or anything else," she said. "Their aim is to fulfill a cultural dream that they’ve likely had on their mind for many years, which is why no one buys in Venice as an investment."
Apartments at the Palazzo, Venice are accessible by private water taxi and some of the apartments have exclusive use of a water door.
SAVILLSEven during the depths of the recession, she continued, people knew what they owned had long-term potential, so they often held onto it rather than sold it at a loss. "People buy for lifestyle, and they don’t really resell," she said. "The market didn’t go down much because of this."
Like other luxury vacation destinations in Europe, there is still a strong rental market in Venice, she said, thanks to tourism and events, such as biennials for architecture, art and music.
"This is a place where, whatever you buy, you will be able to rent it out and more than cover your costs, and get quite a good return," said Ms. Doyle, who has been renting Venice properties for more than 30 years. "But that’s never the main reason for buying."
In terms of what renters want, Ms. Doyle said they’re most often looking for a property in a prime location, such as San Marco, Castello or anywhere on the Grand Canal. It should have outdoor space, spacious rooms, high ceilings and canal views.
A property like this won’t go for any less than €1.5 million (US$1.74 million), Ms. Doyle said, and recently, there’s been more investment at the top end of the market. "The €20 million-plus market is becoming stronger now," she said, "but for many years, it was really slow."
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Cannes: Local accessibility to the city center
In Cannes, like other old world European hotspots, prices are flat, with minimal, if any growth, Ms. Mikleticova said.
For instance, one client from London who she’s representing bought a Cannes apartment eight years ago for €650,000 (US$735,785). Now, he will likely get €850,000 (US$985,719) to €900,000 (US$1.04 million) when he sells it, which, if you consider agency fees, is just over a 10% return. "For a lot of investors," she said, "this is not great."
The only true opportunity for buyers to make a relatively quick return on their investment is to buy something run down, refurbish it and then resell it, Ms. Mikleticova said. However, any foreigner looking to do this will face strong competition from local developers, making this opportunity nearly impossible to execute.
Local developers know they can purchase fixer-uppers with potential at a good price, she said, which means that, "whatever is left, the locals didn’t see any value in."
For foreign buyers who want to purchase a second home in Cannes and then rent it out when they’re not using it, there’s the opportunity to get a good return, she said, specifically if the property is in the center of Cannes, in a neighborhood like Baname/Croisette or nearby La Californie.
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"Apartments of €500,000 (US$579,835) to €2.5 million (US$2.899 million) in the center of Cannes will always have a high volume of renters," she said. This includes people who are in town for the annual Cannes Film Festival and other exhibitions held at the massive conference center, called The Palais des Festivals.
Other properties likely to bring in regular renters are larger apartments or villas in prime areas, which are likely to be rented out by larger organizations during these conferences, or wealthy families for vacations.
Andrew Mortaza, a senior agent with The Agency in Los Angeles, is currently trying to sell the Cannes property of a Swiss-based client. Although this €12.8 million (US$14.84 million) seaside penthouse a stone’s throw from the conference center hasn’t found a buyer after more than a year on the market, it consistently rents for €180,000 (US$208,740) for 10 days during the film festival and to a Saudi family every summer, Mr. Mortaza said.
"If you buy a property like this one," he continued, "you’ll likely buy it as a second residence, with the idea of holding onto it and leasing it out when you’re not there."
Even though prices are flat and the buyers who are out there are favoring less expensive properties than in years’ past, there is some sign of hope on the horizon, Ms. Mikleticova said, as the sales volume went up this year over last year.
"Even if the prices remain stagnant," she said, "there are still buyers out there, and I’m hopeful that this trend will continue."
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