Alexandros Moulas, Director, International Development Consultancy of Savills led The Residential Market Overview panel at MR&H 2018. Read his Q&A below to discover why mature markets like Spain, Portugal and Italy are top on developers’ lists, while Greece, Cyprus and Montenegro are on investors’ radars.


Q: In what markets are you seeing the best opportunities and why?

A: It depends on your perspective; are you, for example, a developer, an investor or a second home buyer? Each of those stakeholders may have somewhat different drivers and objectives to one another, however, they all try to maximize the value of their investment.


From a developer’s perspective, the key motivation is to invest in mature and established markets with strong domestic and foreign demand where development costs are relatively balanced. Given that developers have a longer investment horizon, as they are typically Profit on Cost-driven, they avoid emerging or volatile markets. Spain, Portugal and Italy are high on their radar. On the other hand, investors in the resort space in the Mediterranean are time / yield-sensitive, as they are primarily IRR-driven. This means that they typically require a fast exit in 5-7 years, or even shorter in some cases, and over 18%-20% IRR. Well established touristic and second home markets, such as Spain and Portugal, are prime targets yet expensive, and therefore, investors have started looking in new less mature markets, such as Greece, Cyprus and Montenegro, in order to find the required returns.

From the second home buyer perspective, the key driver varies depending on the key purchase motivation, for example, lifestyle vs. investment. For lifestyle buyers, the traditional prime markets are the Algarve (Portugal), Costa del Sol (Spain), the French Riviera and Sardinia (Italy), while there is lately an influx of HNWIs investing into Citizenship (EU Passport) programmes in markets like Limassol (Cyprus). For investment-driven buyers, strong rental markets and specific projects offering high yields (sometime fixed for a number of years) are the priority, again focusing on Portugal, Spain, France and Montenegro.



Q: What is the profile of the second home buyer in the Mediterranean, and is it changing?

A: The profile of second home buyer in the Mediterranean has changed significantly over the past 20-30 years, and it is expected to keep evolving in the future as a result of an ever-changing political, economic, demographic and technological landscape across the globe as well as developing travel / holiday preferences, lifestyles and purchase motivations of the second home buyers.


The current profile of the second home buyer could be described as follows:

  • Investment-driven; 65% of buyers are looking for rental returns and capital growth compared to 24% 30 years ago, 30% 20 years ago and 45% 10 years ago. Only 32% buy solely for private use now compared to 70% 30 years ago.
  • Cash buyers; 50% of all buyers personally finance their purchase, compared to 37% some 10 years ago.
  • Preference for smaller units and apartments; they are more space and cost-efficient, offering higher rental returns and a ‘hassle-free’ experience (“lock-up-and-go”). Approximately 44% of buyers prefer apartments compared to 40% who prefer villas, which has significantly changed over the last 20 years (30% and 53% respectively).
  • Preference for resales and particularly, for properties over 10 years old, as buyers can negotiate more aggressive discounts, with 70% of buyers falling into this category (vs. 51% 10 years ago). Off-plan purchases significantly reduced after the Global Financial Crises due to stricter financing, increased uncertainty of delivery, longer waiting periods until the property is built and the lack of returns until it is delivered.
  • Budget up to €500,000, with 83% of the market spending up to that amount (vs. 73% 25 years ago).
  • Placing great importance on the three “B”s when buying: Broadband, Balcony, Beach.


Q: What is the impact of golden visa policies on the second home market?

A: Residency (also known as “Golden Visa”) and Citizenship programmes (also known as “Passport” schemes) are offered from a number of countries globally, including the Mediterranean basin. Both programmes target second home buyers and their families from third countries (outside the EU) and aim in boosting the local property market and, subsequently, economic activity. Buyers invest in property above a certain amount and in return they obtain residency (typically a renewable 5-year resident permit) or citizenship (passport of that country), which offers them certain benefits, for example free access to Schengen zone, no visa requirement and tax incentives.


Countries like Portugal, Spain, Greece, Malta and Cyprus offer such schemes, though with varying thresholds (ranging from €250,000 to €500,000 for Residency and €2m for Citizenship), which has proven to be beneficial for the local markets. The most notable programme is the Citizenship programme of Cyprus, which combined with the overall recovery of the economy, has boosted the property market considerably. The Portuguese Golden Visa is also considered very successful, though over 90% of those buyers are investing in the wider Lisbon area. The Greek Golden Visa programme has grown stronger over the last few years, but again, the majority of buyers are buying in the country’s capital (Athens).


However, it should be noted that the greatest benefits from those programmes are mainly seen in and around the main urban areas (primarily the capital cities in each country), since buyers consider them safer for investment (lower seasonality, higher rental potential, better yields, easier resale), more conveniently accessible and easier to be professionally managed and maintained.


Furthermore, there has been big debate around the sustainability of those programmes in the long-term, as they sometimes result in inflated prices and, therefore, distortion of the market. Another consideration relates to the negative impact of having empty projects, since those buyers rarely visit their properties, which jeopardises their viability and success in creating lively and active communities.


To conclude, the success of these programmes must be assessed through the dual lens of long-term sustainability and short-term benefits for a market or project.


Q: Branded or unbranded residences: what is the best option for developers of residential projects in the Mediterranean and why?

A: The big dilemma that developers face: To brand or not to brand?Branded residences is a fast growing sector in Europe (and globally) with a number of city and resort projects in the pipeline. This is due to a combination of low supply of branded residential projects (Europe accounts for less than 10% of the sector globally), increasing demand from buyers for this product and the fact that both developers and the brand providers (e.g. hotel operators, car manufacturers etc.) have started realising the significant value-add and win-win results.


Buyers recognize and appreciate the value of a brand, whether it is a hotel brand (e.g. Marriott, Four Seasons, Mandarin Oriental), a car brand (e.g. Mercedes, Aston Martin, Porsche Design) or a fashion brand (e.g. Missoni, Armani, Versace), and are prepared to pay a premium to acquire a branded residence. Other important drivers include the top-notch facilities and high-quality services offered, the professional property and rental management, access to an environment of like-minded people, as well as increased chances of capital appreciation and better resale potential of their property. A brand is a stamp of quality.


On the other hand, the benefits of branding a project should be very carefully balanced against all costs and expenses that the developer, hotel owner and property buyer will have to pay. Royalty fees, annual license fees, construction and FF&E costs, service charges, but also other conditions set by the brand provider (e.g. related to the development phasing or absorption rates of the residences) should be considered when considering branding a scheme.

The positive effects of branded residences are maximized in less mature or emerging property markets where local supply cannot sufficiently cover the needs of buyers. However, the success of branded residence projects is always linked to the overall value proposition to buyers, therefore, projects should be properly priced through benchmarking against the local market and similar projects. Finally, it should be noted that a brand does not guarantee higher sales velocity; to the contrary, absorption rates are typically lower compared to equivalent non-branded projects due to the lower capital values that the latter offer.


To conclude, deciding to brand the residential component of a project should be the result of very careful consideration and deep analysis of the macro and micro location, the project itself and, of course, the developer’s vision and objectives.


Q: If you could have a second home in any Mediterranean destination, where would you choose?

A: Greece. I belong to the 72% of buyers who prefer buying a second home in their home country due to a number of reasons, such as language, family bonds, familiar environment, similar mentality and habits etc. I cannot think of any better place for me than my home country, which happens to have some of the most beautiful islands, crystal clear waters and beaches, an amazing gastronomic culture and an abundance of places of historic significance in the Mediterranean.


I also belong to the 65% of buyers who are investment-driven and want to privately use their property for holidays and cover the annual their overheads, and of course make some profit. With high tourist demand in certain Greek islands, rental returns are often strong and sometimes yields exceed 5%-7% on a net basis, while the market offers some great opportunities due the bottomed out prices.


If I had to choose, a 4-bedroom villa on Corfu island in the Ionian Sea would rank top of my list; nicely landscaped gardens, a swimming pool and a stone’s throw from the beach; what more could you want?