Second home is usually a vacation home, individual or in a resort, intended for owners to use a certain amount of time throughout the year. On the other hand, an investment property is purchased for the purpose of generating a profit. In the case of second home as an investment property, it is through rental income, even if owners occasionally reside in the home. Owners can rent the property on their own, use an agent or enter the rental pool that some second home resorts offer.
Developers and buyers of second homes have a complementary interest. Developers view it as short term investment which maximizes returns through sales, while buyers see it as long-term investment for their own use or stable returns through rental revenue.
Mixed-use resorts, with hotels and residences, have a great synergistic effect for the entire resort, both for developers and buyers. Often they are supplemented by golf courses or marina to boost overall appeal, attract potential users and reduce seasonality.
Second home resorts are usually located in leisure locations outside urban centres and for that reason, infrastructure and accessibility are crucial for the success of the resorts. Managed resorts provide structured amenities, equipped FF&E and maintenance-free assets for an investor.
Many countries impose restrictions for the sale of units in tourist zone which can complicate the sale process for investors and buyers. This is usually resolved through the sale of share in ownership of the resort but can be deferred for some prospective buyers and their financing options.
Resort developments can be quite costly investments. They require purchasing large land plots in attractive locations. As they are usually located outside populated areas, they might need large infrastructure investments for roads and utilities. Also, legal and zoning issues can slow down the process. In such an environment, selling the residences provides quick capital to deleverage the investment and improve project IRR.
Second home resorts usually combine a hotel with its accompanying amenities and residential units. Hotel with amenities provides all-year activity and services for the entire resort. Residential units, which can vary from studio apartments to luxury villas, are sold to individual owners. Selling residential units is a practical way to fund the development of the resort, especially as they are often sold even before construction starts (off-plan sale). A certain level of pre-sold units is also required from the banks in order to provide for the loan needed to complete the investment. Furthermore, hotels benefit from providing services and amenities to the homeowners once the resort becomes operational.
Residences can become part of the rental pool after-sale, an option that is mandatory in some resorts, especially branded ones. When units enter the rental pool, they are required to keep a certain level of FF&E and maintenance, which positively affects the entire resort.
Generally, second home buyers can be divided into three groups: users who buy solely for their own use, users/investors who use it for a few weeks annually and let their property for the remaining time and investors who are interested only in returns, whether through rental income or capital appreciation. Finally, second home can be a trophy asset and represent a status symbol for the small share of luxury homeowners.
Rental returns are turning into important motivation for second home buyers. Also, the smaller and cheaper side of the market is expanding and apartments are more in demand than large villas. Owners primarily use rental returns to cover costs of owning a property (maintenance and mortgage payments), while some even manage to have extra profit. Second homes are usually planned as a long term investment for buyers.
Owning a second home in a managed resort offers an opportunity to own a hassle-free property with guaranteed returns. Also, if the resort is branded, the buyers have the security coming from the brand standard, including high-quality fit-out and top service. Additionally, it will probably have a higher yield than properties in non-branded resorts.
Branding the resort can have many advantages and positive impacts through better occupancy and higher sale price and further rental rates. Also, it can provide benefits by distinguishing the resort from the competition, especially in the emerging markets. Conversely, it will increase investment costs to achieve brand standards and reduce profits through various brand fees. Furthermore, branding the residences does not guarantee a quicker sale pace.
Green credentials are becoming more and more important for new developments. Not only the banks are willing to offer more favourable financing conditions to certified projects but the buyers are increasingly aware of environmental impact and potential energy efficiency. Consequently, although such certification increases development costs, it can add a premium to sale prices.
Before COVID-19, second homes were considered a vacation getaway, but the increase in remote working has made those properties possible to use for more extended periods. Also, they have been viewed as a safe haven as they are located away from high-density and crowded areas. Especially popular are properties located within driving distance. The pandemic has shaken the tourism industry and the future is still hard to foresee. This boost in popularity of second homes due to the privacy they offer might continue.
In comparison with other Mediterranean countries, Croatia has an underdeveloped second-home resort market. Croatia is lagging in terms of current stock and pipeline. There are only a few large resorts with residential component on the entire coast and most of the existing resorts can be regarded as old in terms of resort properties, as they are close to 10 or more years old.
Despite high interest from foreign investors and developers, very few large-scale greenfield investments exist in this sector. Key impediments to new projects remain red tape (slow and complicated bureaucracy), inefficient judiciary, fiscal policy, seasonality of the destination and accessibility issues.
One of the main issues in tourist destinations in Croatia is too much supply of private accommodation, which has a detrimental effect on the destination itself and reduces the life quality of the local population. Excess development of residential properties that end up being used for tourism-rent result in lack of supply for a primary residence, overload of infrastructure and finally unattractive sights. Shifting the focus to the resorts can alleviate the pressure from the local communities.
Through thoughtful planning and regulated spatial plans to develop the Croatian coast, there is an opportunity to develop the Croatian coast that will not allow overdevelopment and devastate its natural advantages. Centralizing the touristic developments in carefully chosen and designed areas can help preserve other parts of the coast. At the same time, developers will have the possibility of profitable investment if the local authorities support them with efficient service and infrastructure connections.