Real estate and destination development in tourism : successful strategies and instruments 9783503177059, 3503177051

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3

International Tourism Research and Concepts

Peter Keller / Thomas Bieger ( EDS .)

Real Estate and Destination Development in Tourism Successful Strategies and Instruments

International Association of Scientific Experts in Tourism (AIEST)

ES erich schmidt verl ag

International Tourism Research and Concepts Volume 3

Real Estate and Destination Development in Tourism Successful Strategies and Instruments Edited by Professor Dr. Peter Keller Professor Dr. Thomas Bieger

With Contributions by Prof. Dr. Otto Bammer · Dr. Pietro Beritelli · Matthias Beyer · Prof. Dr. Thomas Bieger · Prof. Dr. Philipp E. Boksberger · Prof. Dr. Manat Chaisawat · Lara Cinesi · Prof. Dr. Giovanni Danielli · Jordi Datzira-Masip · Raf de Bruyn · Isabelle Engeler · Dr. Jörg Frehse · Prof. Dr. Frank M. Go · Patrick Hainzl · Marcus Herntrei · Prof. Dr. Hubert Job · Marco Julià-Eggert · Prof. Dr. Peter Keller · Lisa Kofink · Prof. Dr. Raija Komppula · Prof. Dr. Christian Laesser · Mia Lammens · Prof. Dr. Dagmar Lund-Durlacher · Prof. Dr. Andrea Macchiavelli · Prof. Dr. Rico Maggi · Prof. Michael Mair · Xavier Matteucci · Daniel Metzler · Prof. Dr. Harald Pechlaner · Helen Reijonen · Dr. Giovanni Ruggieri · Dr. Miriam Scaglione · Claudia Scholz · Dr. Markus R. Schuckert · Prof. Dr. Hubert Siller · Prof. Dr. Jürg Stettler · Marc Stickdorn · Tuomas Timonen · Oraphan Tungsomboon · Dr. Serena Volo · Daniela Wagner · Prof. Dr. Klaus Weiermair · Robert Weinert · Dr. Anita Zehrer

E R I C H S C H M I DT V ERLAG

For further information concerning this title please follow this link: ESV.info/978 3 503 17705 9

Printed Edition: ISBN 978 3 503 11088 9 eBook: ISBN 978 3 503 17705 9 ISSN 1862-9946 All rights reserved © Erich Schmidt Verlag GmbH & Co., Berlin 2008 www.ESV.info Should discrepancies arise between the printed book and electronic edition, the printed version is binding. Design and Layout: Zvjezdana Zehnder-Vujkovic´, aiest

Table of Contents

Peter Keller, Thomas Bieger Introduction ..........................................................................................................

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Section 1: The Role, Structure and Development of Destination Real Estate Markets Jordi Datzira-Masip, Marco Julià-Eggert Spain and Croatia: Traditional versus new markets for residential tourism ........ 11 Harald Pechlaner, Lisa Kofink, Marcus Herntrei Hotel resorts in South Tyrol: Drivers and constraints for a real estate-based development ......................................................................................................... 25 Manat Chaisawat, Oraphan Tungsomboon Real estate market for long stay tourists and expatriates in Phuket..................... 45 Section 2: Evolving Destination Market Business Models Andrea Macchiavelli, Lara Cinesi Low cost tourism and real estate demand ............................................................ 63 Miriam Scaglione Dynamics of price negotiation in real estate at upscale resorts in the Alps – A case study of Verbier, Valais, Switzerland....................................................... 79 Rico Maggi, Claudia Scholz A perspective on beauty – Reading urban attractiveness via content analysis of photographs...................................................................................................... 97 Section 3: The Socio-Economic Impacts of Real Estate on Destinations Giovanni Ruggieri The economic impact of tourism in private homes: The case of the Lipari Archipelago .......................................................................................................... 121

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Table of Contents

Otto Bammer, Patrick Hainzl, Michael Mair, Daniela Wagner Developments in real estate and tourism in Alpine winter sports destinations: The case of the Styrian ski resort Schladming ..................................................... 131 Xavier Matteucci, Dagmar Lund-Durlacher, Matthias Beyer The socio-economic and environmental impacts of second home tourism: The South Pacific Coast of Nicaragua Example .................................................. 149 Section 4: Optimizing Destination Capacity through Real Estate Management Strategies Mia Lammens, Raf de Bruyn, Frank Go A conceptual design of public measures: The case of the Flemish holiday property market .................................................................................................... 165 Anita Zehrer, Hubert Siller, Marc Stickdorn Second homes and sustainable development – A perception analysis of second homes in Kitzbühel, Austria................................................................................. 179 Serena Volo Real estate supply and demand issues in a seaside destination............................ 193 Section 5: Real Estate Strategies for Destinations Klaus Weiermair, Jörg Frehse Real estate private equity investment and its impacts on the business development strategy of international hotel companies in European tourism destinations........................................................................................................... 217 Markus R. Schuckert, Philipp E. Boksberger Development of destinations and real estate in a tourism region – An application of life cycle theory....................................................................... 233 Jürg Stettler, Giovanni Danielli Image, truth and illusion in tourism promotion: The problem of the rapid spread of second homes in Switzerland and planning strategies ......................... 249

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Table of Contents

Section 6: Public-Private Governance Approaches for Managing Holiday Property Market Development Daniel Metzler, Hubert Job Embedding leisure facilities in destination development – Two case studies of water parks in Germany ....................................................................................... 269 Raija Komppula, Helen Reijonen, Tuomas Timonen Vacation home owner’s willingness to lease through an intermediary – A case study in two Finnish ski resorts ................................................................ 285 Pietro Beritelli, Isabelle Engeler, Christian Laesser, Robert Weinert Estimating renting behaviour of second home owners – The case of Swiss Alpine destinations ............................................................................................... 301 List of Authors ..................................................................................................... 313

VII

Real estate market: Impacts on tourism destinations

Introduction

Peter Keller & Thomas Bieger

1 Strategic issues The International Association of Scientific Experts in Tourism (AIEST) is a worldwide network of researchers which at its annual conferences discusses fundamentals and concepts for achieving growth and competitiveness in tourism. The third publication in the new series “International Tourism Research and Concepts” is devoted to the analysis of the booming real estate market and its impacts on destinations. Scientific contributions selected for their methodical relevance and the practical solutions they offer highlight the new dynamic of residential tourism in destinations and resorts. For some years now there has been a genuine boom in the holiday property market. Residential tourism demand is growing despite the present turbulence in the real estate and financial markets, and is rapidly becoming internationalised. Amenity Migration, Search for Trophy homes and speculation are important drivers for the development of tourism and leisure property market. Entrepreneurs in the property market are investing in the best sites, in both new and traditional destinations. They have developed new business models designed to make the acquisition of property as attractive as possible. At its best, this growth facilitates the creation of new tourism centres and revitalises the often rigid and poorly-used structures of existing tourism regions. At its worst, it leads to empty beds in the traditional accommodation sector, reduces the attractiveness of destinations, and produces eyesores for the local population. A relatively high share of second homes in a destination is often considered as an indicator that their positive impacts on the product cycle are being lost, and of the beginning of decline.

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Peter Keller, Thomas Bieger

The contributions selected here address the reasons for investing and for acquiring real estate in destinations. They show how hybrid forms of accommodation could satisfy new customer needs better and ensure a profitable supply and use of properties. It is discussed how rigid traditional accommodation structures can be improved and what kind of measures could overcome the so-called “cold beds” problem. Finally, the articles focus on possible ways of maximising the benefits to be derived from new forms of accommodation in the destination, while minimising the negative, socio-economic aspects resulting from the inefficient use of infrastructure and high operational costs.

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New dynamics of residential tourism and the destination real estate market Holidays taken in properties which are owned or rented are considered as residential tourism. This traditional form of tourism results from a demand for the kind of accommodation that allows flexible use and a free choice of services. The analysis of the development of tourism destinations shows that residential tourism depends essentially on the stage of development of the local economy. Countries which open themselves to the world market become wealthier. The increase in household budgets makes tourism more popular. Wealthier households can afford to buy second homes. The larger part of the population needs affordable accommodation, which apartments without services can offer. These two existing models of the development of residential tourism are to some extent linked to the domestic markets in traditional tourism countries. The traditional markets for these forms of accommodation now overlap with new demand trends, such as the need for luxury holiday estates, ongoing internationalisation and the concentration on the most attractive places. Many members of the post-war “baby boom” generation have made fortunes, which they increasingly invest in holiday homes in the most beautiful places on the planet. They soon identify entirely with their new homes, whatever the country and region they have adopted. Belonging to the community of their second home becomes an important part of their self concept. At the same time, younger generations are looking for homes that will allow them to lead a family life free of all constraints. Young people with shared interests often flock together (“snowboarder” communities are a notable example), and look for accommodation that can cater to their special needs (Bieger/Laesser, 2007). On the other hand legacy building in form of creating a refuge for families over generations is another important motivation of buying real estate above revenue prices.

2

Introduction

Americans are purchasing and investing in residential property in the Rockies and in Mexico. Certain “costas” in Spain host entire colonies of retired people from other countries, especially UK. Tourism areas in France are also much in demand among people in search of holiday or retirement property. The growing internationalisation of the demand represents an even more important trend. Low cost carriers assure cheap access. The upper market segment is increasingly focused on the most attractive sites, both in traditional and in new destinations.

3

New global framework conditions and business models for accommodation in destinations Developers building real estate for the leisure sector are customizing their offerings according to the new needs of the demand. They are able to offer today’s clients exactly what they want. The aim is segmentation of the market. Second home salesmen offer their clients the prestige of luxury apartments with services – which are the new nec plus ultra of tourism accommodation. There is an international clientele for luxury properties, now known as “trophy homes”. In traditional destinations, the supply of lodging is fragmented into small, complex structures. In the family-owned hotel sector, the supply is fairly rigid. In rented apartments and second homes, the offering is adapted to the specific needs of the customer with greater flexibility. But the supply is targeted essentially at the home and nearby markets, often in the cheaper market segments. Major real estate investments in innovative forms of lodging, however, are changing the accommodation structure of traditional destinations. They combine customized services and industrial methods in order to overcome the disadvantages of the small, fragmented structures which exist at present. They make lodging “hybrid” in the sense that they add all kind of services to the core business of accommodation. Investors often concentrate their business activity on the real estate and leave the management of the lodging units to tourism firms, in order to spread their risks. The types of financing available in the holiday property market are increasingly varied. In addition to the classic forms, property is now available “by floor”, on a time-share basis and for “fractional ownership”, a development which AIEST has been monitoring since its 1995 conference on real estate in the Canary Islands (AIEST, 1995).

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Peter Keller, Thomas Bieger

Entrepreneurs in the holiday property market have found it easier to capitalise on this new demand thanks to favourable economic framework conditions, including the liberalisation of the global capital markets, and interest rates in industrial countries which for a long time were at low levels. In travel, low-cost carriers have reduced transport and time costs, and made attractive tourism regions such as Provence, Tuscany or Alpine ski resorts accessible for short and repeated trips in the field of residential tourism.

4 Market mechanism and real estate development in resorts In major tourism resorts, the real estate business is of the utmost importance. In the trendiest areas, the gross value added each year by the sale of holiday properties amounts to 10% or more of the total gross regional product. This creates jobs that are much appreciated by the local population. The value added created by construction firms and real estate agencies is in such resorts often higher than that of the hotel industry and the traditional forms of tourism. Concepts of political economy and public choice can be applied to explain the tendency of destinations to avoid restrictions on second home building. In some tourist regions most mayors are part of the real estate sector. In general, the market mechanism in the real estate market in the destination operates normally, even if the visible impacts, positive and negative, are varied. The price of real estate depends on market factors such as the construction zones available and the quality of the supply. They are also a function of the purchasing power of potential buyers. Prices rise when land is scarce and when the quality of what is offered is high. In a saturated market, as is often the case in choice resorts, the price will depend on the last unit sold or the marginal sale. The differentiating factor as compared to the urban and rural markets is the hedonistic component, in that leisure- and tourism-related property prices always reflect the attractiveness of a given destination. Prices can also be affected by an extraordinarily beautiful view, prestige and snob appeal, and the mere fact of being different. Hedonistic price models today are a valid resource of data on the impact of specific quality dimensions. In resorts, properties which are highly appreciated represent superior investments. During the sub-prime mortgage crisis which led, in turn, to a major financial crisis and a slowdown of the world economy, they maintained more or less their market value. The trend in favour of top products and qualities proved to be stronger than speculation, and contributed to mitigating the impact of potential price bubbles.

4

Introduction

5 Optimizing destination accommodation capacity Accommodation capacity which is under-used makes the production of lodging services inefficient and unprofitable. Occupancy rates of traditional hotels and rented apartments in existing tourism regions are generally higher than those of properties which are occupied by their owners and not put on the rental market. Empirical studies have shown that, on average, a second home is used by its owner for seven to eight weeks per year. Only 10% of owners rent their apartments in resorts, in order to improve their occupancy rates. It is noteworthy, however, that the expenditure of those who occupy second homes can be as significant locally as in the case of visitors coming for the day (Bieger, 2005). The difficulty of the situation regarding existing accommodation is often put down to the excessive construction of properties which are not put on the rental market, a phenomenon referred to by opinion leaders in destinations as “cold beds”. This argument is not totally convincing. If all the owners of holiday properties were to rent out their houses and apartments, the amount of available units would increase and exert a downward pressure on the price of accommodation in a given destination. Neither would it improve the situation of the small family-run hotels and guesthouses which also suffer from low occupancy rates. These are not in a position to rationalise, to cut their costs, or to reinvest. As for the existing stock of rented apartments, the situation is even worse. Not being standardised or managed professionally, they are often difficult to place on the commercial market. These complex developments which result from integrated analyses of supply and demand side make the accommodation structure of traditional destinations rigid. Neither the maintenance of traditional accommodation structures nor the growth of properties occupied by the owners, even if these are partially rented out, represent efficient solutions for traditional destinations. The traditional structures, particularly family-run hotels, cannot attract financing because of the weak profitability of their core business. Properties rented out by their owners have a discriminatory impact on the local accommodation as a whole and represent a shadow economy. Innovative solutions nonetheless are emerging, driven by market forces. Real estate investors in the high-end segment of upscale resorts, such as Courchevel in the French Alps, are combining lodging units occupied by their owners with all kinds of room, catering, leisure and sports services, which creates both additional income and local jobs (Keller, 2007). Real estate investments can help to rejuvenate traditional hotels by selling rooms in the form of fractional ownership.

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Peter Keller, Thomas Bieger

In the lower market segments, new forms of cooperation such as the “Swiss initiative for the apartment sector”, which aim to standardise supply and distribute it through internet, can internationalise private houses and apartments owned by residents and increase occupancy rates (Reka, 2007).

6 New destination strategies for a better use of real estate investments Whereas optimising use and profitability is a task for the private sector, one cannot deny that as well as the positive effects of real estate investments there are also negative ones, which affect visitors and residents alike. This is particularly the case in the most attractive, traditional resorts, such as Chamonix-Mont-Blanc, the largest Alpine tourist centre, where the quantity of second homes is not only considerable but also accounts for a large part at the total supply of lodging. In some major tourism resorts, properties are used by their owners account for 50-80% of the total stock of accommodation. Investments in real estate transform traditional tourism resorts into cities and new urban areas, which can attract new business and diversify the economy. Resorts can be enhanced and become attractive towns close to natural and cultural attractions. The presence of visitors and owners of second homes tends to improve the quality of life, giving rise to a multicultural society. The negative effects of such urban areas cannot, however, be overlooked. These include the high prices asked for the rental or purchase of houses and apartments in the best sites, and the problems that arise from the proliferation of private transport, overuse of land and visual pollution. The future of traditional resorts will not be assured by strategies which encourage the maintenance of existing structures. Nor is it enough to slow down the construction of tourism-related apartments and homes. One far more important trend is the effort to combine the traditional types of accommodation with new forms, as is successfully being carried out at integrated resorts such as Whistler, in the Canadian Rockies, where the AIEST Conference 2008 on real estate development and its impact on destinations will take place. Rejuvenating the life cycle of existing accommodation may require attracting largescale investment in the new types of accommodation which can offer higher occupancy rates. Such investments, which will have to resolve the problems associated with smaller companies, can provide a new source of profits for potential clients. The future strategies of destinations must include structural changes likely to encourage the diversification of lodging, together with a more standardised range of products.

6

Introduction

Regional and local authorities have an important role to play. They can make it easier to derive the full benefits from new housing and accommodation strategies in tourism regions. They should promote tourism by facilitating investment in those types of accommodation that, given appropriate management and marketing, can ensure satisfactory occupancy rates. These promotional measures need to be conceived within the framework of a master plan designed to stimulate and guide development of the tourism accommodation sector, while also taking the housing needs of the local population into account. The objective of such a plan must be to reduce the negative impact of the concentration of holiday properties, using the tools of both regional planning and fiscal regulation. To achieve the desired level of development in a market economy a basic principle must be observed: fiscal measures must be given preference over restrictions. Reinvesting the resulting tax revenue could help to revitalise the existing stock of accommodation. And simplified income tax should be applied to enhance renting out of existing second homes. In addition new forms of investments like resort building should be applied to allow for new and mixed forms of accommodation and new forms of operations like semi serviced apartments should be introduced. Depending on the type of destination (position on the destination life cycle, competitive position of a destination and distance to the main markets) different strategies for real estate developments should be applied. At the end a mature top destination should target leveraging returns on real estate development for a possible relaunch whereas for example a peripheral medium destination should target an attracting new investors by a large scale resort.

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Peter Keller, Thomas Bieger

Bibliography AIEST (1995), Real Estate Business and Tourism Development, Vol. 37, St. Gallen, p. 395. Bieger, Th./Laesser, Chr. (2008), Hybrid forms of accommodation: Market needs and international trends, in: La Vie économique (5), pp. 46–49. Keller, P. (2007), Real Estate: From Boom to Imbalances in Tourism Resorts, Conceptual Framework and Proceedings, 9th Summit of Tourism Chamonix-Mont-Blanc, France. Laesser, Chr. (2007), Limits of traditional business hotels and international developments in the accommodation industry, Conference given at the Hotel Finance Forum, Lenzerheide. Swiss Travel Bank/REKA (2007), Swiss Apartment Initiative, Final Report, Berne.

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Section 1: The Role, Structure and Development of Destination Real Estate Markets

9

Spain and Croatia: Traditional versus new markets for residential tourism

Jordi Datzira-Masip & Marco Julià-Eggert

Abstract The paper is to present the current situation of the Spanish and the Croatian property markets, with special focus on residential tourism, and therefore, comparing a traditional market versus a new market. Thus, explaining the phenomenon of residential tourism and identifying the most relevant issues affecting the development of real estate in both countries, Spain and Croatia. Highlighting the importance of residential tourism for both countries in terms of their economic results, and therefore, understanding the way in which the development of residential tourism affects the overall economy. Defining the residential tourism model and the factors influencing both countries and, highlighting the way in which residential tourism has to adapt and compete in a more sophisticated and globalized world. Keywords: Spain, Croatia, residential tourism, supply, demand, competitive advantages and competitive disadvantages

1 Introduction Spain has been one of the fastest growing economies in the EU during the last years, although it has recently started showing an economic slow-down, with higher inflation, interest and unemployment rates. Spain began as one of the first residential tourism markets in the late 60-ies, first driven by foreign buyers that were searching for sun and beach at a booming destination. With the development of the country, the amount of domestic second residence buyers largely outgrew the foreign ones, and further contributed to boost the country’s economy, until recently, when the steady and permanent increase in property prices in the first place, and the global economic crisis in the second, struck the Spanish construction activity and has now left it facing a period of uncertainty. In addition to these factors, there is growing competition from new attractive destinations which claim to be what Spain more or less was, years ago. Croatia is one of these new tourism destinations chal-lenging rather traditional markets such as the Spanish.

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Jordi Datzira, Marco Julia-Eggert

Economically, Croatia has a fairly high GDP growth in comparison with other European countries, mainly due to investments and exports, and its inflation and unemployment rates are controlled and even decreasing slightly each year. Data

Spain

56,542 sqkm

4,872 km (7,883 km

1,777 km (4,058 km including

including islands)

islands)

45,200,737 inhabitants

4,493,312 inhabitants

Coastal area Population Capital

Croatia

505,992 sqkm

Area

Madrid (3,132,463

Zagreb (973,667 inhabitants

inhabitants in 2007)

in 2005)

Parliamentay Monarchy

Parliamentary Republic

Currency

Euro

Kuna €1 = 7.35kn

Inflation

3.5%

3.2% (estimate)

Unemployment

8.51%

11.8%

Income tax

30.0%

20.0%

VAT

16.0%

22.0%

€ 21,332 (estimate)

€ 9,300

3.9% (estimate)

4.8%

Political system

GDP (per capita) GDP growth

Table 1: Key country data Source: www.cia.gov and INE (Spanish National Institute of Statistics) 2006

Croatia has, in proportion to its total surface area, one of the largest coastal areas in the Mediterranean. Its climate, although enjoying hot dry summers and mild winters, is nevertheless much more seasonal in comparison to other Mediterranean countries. Croatia is showing relatively good economic conditions and therefore a positive growth perspective.

Map 1: Location map Source: www.europeemaps.com

12

Spain and Croatia: Traditional versus new markets for residential tourism

1.1 A conceptual framework for residential tourism There are different concepts to define residential tourism among governments, industry and the research community, and therefore, there is a need to agree upon a common definition. As an example, according to the Spanish government “Secretaría de Estado de Comercio y Turismo”, residential tourism can be defined as ’an extended tourist stay during holiday periods in a determined geographical location. Be it a stay in self-owned or rented property. Thus, a second residence is a property which is not the normal place of residence but used for holidays’. After having analysed the different concepts of residential tourism, our suggestion is to make just one simple but clear definition of residential tourism, as ’a tourist stay at their own or rented property’. Residential tourism has a clear impact on the local economy, providing an opportunity for an additional source of growth.
Second homes


Apartments


Residential homes


Apart hotels


Holiday homes
Time sharing

in


Attached and semi-detached homes
Villas


Buy to let


Holiday clubs


Others


Others

Table 2: Residential tourism concepts Source: own illustration

Reasons to purchase a second residence are related to the following main factors: (A) enjoyment of a vacation or retirement destination; (B) expected return on investment; (C) a combination of both. Nowadays the second reason is becoming a more important factor that some years ago, and this in turn has led to the appearance of new models and governmental regulations to address the residential tourism phenomenon.

2 Spain and Croatia residential tourism development In Spain, the construction industry has been a very important activity for the Spanish economic growth during the last decades, which shows the importance of this activity as a tool to promote growth and development. According to the Spanish National Institute of Statistics, in 2006 construction represented 10.8% of the Spanish GDP and generated more than 12.5% of total employment.

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Jordi Datzira, Marco Julia-Eggert

The growth rate of the construction industry more than doubled from 1996 to 2006, while employment in construction increased significantly over the same period. According to Grupo i, in Spain, in 2005, holiday residences represented 13% of the total construction sector and the sector generated a total of 31 million euros of business.

Non residential buildings 20%

Holiday residences 13%

Main residences 40%

Civil works 27%

Figure 1: Structure of the construction activity in Spain. 2005 Source: Grupo i, ’El mercado de la vivienda vacacional en España’ (The Holiday Home Market in Spain), 2005

The GDP in Croatia has been showing a continuous growth since the end of the war, foreign investors started considering Croatia as a safe investment environment. Foreign investments as well as privatization can be stated as the main causes for the GDP in 2007 reaching 37,497 million euros. Sources infrastructure 12%

Industry 1%

Other structures 1%

Residential buildings 16%

Transport infrastructure 43%

Nonresidential buildings 27%

Figure 2: Structure of the construction activity in Croatia. 2005 Source: www.hgk.hr

The most recent data provided on the construction industry is for the year 2005. It shows that residential buildings accounted for 16% of the whole sector (although data is not divided into primary and secondary property markets – thus further comparisons would need more detailed information). Considering that large infrastructures were built throughout Croatia in the last years and that residential development was limited due to zoning plans, it is logical that most of the construction investments were related to infrastructures. 14

Spain and Croatia: Traditional versus new markets for residential tourism

12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Spain

Croatia

Figure 3: Share of construction activity in GDP. Spain vs. Croatia 1995–2005 Source: www.hgk.hr and www.ine.es

The share of construction activity in GDP in Spain showed a continuous growth in the decade (1995–2005), while in Croatia the evolution was smaller than in Spain and showed a more cyclical evolution over the same period. In spite of the lack of information about Croatia’s residential tourism construction activity, it can be inferred that if the total residential buildings account for 16% of the total construction activity, there is still a large room for increase when compared with the Spanish figures.

2.1

Residential tourism supply and demand Spanish supply

Croatian supply Classification

INE (Spanish National Institute of Statistics) classi-

DZS (National Statistic Bureau) classifies two types

fies four types of home:
Main residence
Second homes: used only for holidays
Empty: available for sale or rent
Other: used continuously but not habitually

of homes:
Family households
Non-family households

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Jordi Datzira, Marco Julia-Eggert

Volume of holiday homes In 2001, 6.5 million homes were not used as a main

Total number of households in Croatia in 2001 was

residence, representing 31% of the total homes.

1,477,377.

During the period 1991–2001, the number of homes

General urban plans are, in some cases, not finished,

increased by nearly 22% in Spain. According to the

and developments on a greater scale are under plan.

Spanish Central Bank, in 2006, there were more

Current existing developments are on a small scale.

than 24 million homes in Spain, and there were

It is estimated that there are about 4,000 residential

16 million families, in other words, Spain has

tourism homes along the coast.

1.5 homes per family, which is the highest ratio in the world. Characteristics of holiday homes The average size of apartments, attached and semi-

Buildings usually comprise of six to twenty apart-

detached homes and villas, range from 100 to 150

ments, with a maximum of three floors.

square meters with two to three bedrooms. Growing

The average size of apartments is of 60 square me-

destinations are Costa Cálida in Murcia and Costa

ters with two bedrooms. In Istria (the most devel-

de la Luz in Andalucía, and the Balearic Islands

oped tourism area, where also the first golf courses

where golf resorts are being built.

are to be built), villas are being built inland.

Average prices In 2007, prices increased by 5.3% and the price per

In 2006, average prices were approximately 1,500

square meter ranged from 2,300 to 3,500 euros (de-

euros per square meter which was 13% higher than

pending on whether it was an apartment, attached or

the previous year; although the average prices for

semi detached home, villa, etc.). In 2004, prices in-

luxury second homes was 2,000 euros, which is not

creased an average of 15%, the highest growth in

so far off some prices in Spain. The HNB (Croatian

the decade 1997–2007, where prices more than

National Bank) states that the price increase is slow-

doubled. Since 1997, the average prices have in-

ing down, although the close EU entry has shown a

creased by 11%.

further boost in prices for all accessing countries to date.

Table 3: Residential tourism supply Source: National Institute for Statistics (INE), Spanish Central Bank, Grupo i, Colliers International and www.dzs.hr

16

Spain and Croatia: Traditional versus new markets for residential tourism Spanish demand

Croatian demand Properties demanded

In 2006, 110,000 properties were demanded for

Investing in second home residences is bringing in-

holiday residences, representing 28% of the total

teresting profit to investors, since the supply is lim-

demand for residences, and it is expected that the

ited and the demand keeps growing. The demand for

figure will increase by almost 25% (to 150,000) by

second homes in Croatia, although not precise data

2010.

is available, is mainly from foreigners.

Demand for holiday residences is reflecting the importance of foreign investment, representing 39% of the total, and it is expected to grow even more. Domestic demand In 2004, the most important source regions for do-

Currently, Croatians are initially acquiring new first

mestic demand were in Madrid (17%), Catalonia

residences in their home towns, so the number of

(15%), Andalucía (13%) and Valencia (13%) repre-

nationals purchasing property as a second residence

senting 58% of the total. In 2000, more than 20% of

is rather limited.

Spanish home owners had second residences (owned or let). They tend to acquire apartments in buildings in traditional destinations such as Costa del Sol in Andalucía and the Costa Blanca in the Valencia region. International demand In 2004, the most important source countries for in-

Of all property purchase permissions from the min-

ternational demand were Great Britain (32%) and

istry, the main property buyers are: German (59%),

Germany (29%) representing 61%. 1 in 4 tourists

Austrian (19%), Hungarian (4%), British (3%) and

visiting Spain choose residential accommodation

American (2%).

and had a distribution mean of 2.5 tourists per sec-

The top region of interest for the foreign investors is

ond residence. The average number of visits is 3 per

Istria (34% of foreign applications).

year and they stay an average of 17 days per year.

This data does not reflect foreigners that purchase

Only 5% of owners let their residence or lend it to

through a company, which would increase the de-

friends or relatives and they tend to buy villas or

mand from other countries such as Great Britain,

attached homes. Growing destinations are the Costa

Ireland, etc. It also does not include Slovenians,

de Azahar in the Valencia region, the Costa Cálida

who are mainly purchasing in the northern cost of

in Murcia and the Costa de la Luz in Andalucía.

Croatia, as well as in some Dalmatian Islands.

Table 4: Residential tourism demand Source: Grupo i (2006) and Colliers International (2006)

17

Jordi Datzira, Marco Julia-Eggert

According to “Light house Spain” (2005), nearly 1 million people approaching retirement showed interest in buying a second residence in Spain and 16% of the British population (9.6 million people) are either current home owners abroad or keen to become one, and 40% to 50% of the owned properties being in Spain. Between 800,000 and 1.7 million foreigners will buy second homes in Spain, 35% of which will be British. Foreign investment in Spanish property was, in 2004, the highest with a total amount of 8,4 billion euros.

Ireland 3% Italy 4%

Norway 2% Portugal Others 2% 9%

Great Britain 32%

Sweden 5% The Netherlands 6%

France 8%

Germany 29%

Figure 4: Foreign investors by country of origin in Spain 2006 Source: Grupo i, ’El mercado de la vivienda vacacional en España’ (The Holiday Home Market in Spain), 2006

Great Britain 3%

America 2%

Other nationalities 13%

Hungary 4% Austria 19%

Germany 59%

Figure 5: Foreign investors by country of origin in Croatia, 2006 Source: Colliers International, Croatia 2006

In Spain, foreign investors are mainly from Great Britain and Germany, representing 61% of the total international demand, while other countries such as France, the Netherlands, Sweden and Italy are also significant. Growing markets for future developments are France, the Netherlands and Scandinavian countries.

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Spain and Croatia: Traditional versus new markets for residential tourism

In Croatia, the most relevant market is Germany, representing nearly 60% of the total international demand, while other important markets are Austria, Hungary and Great Britain to a lesser extent. Therefore, it should be stated that the acquisitions made by companies where foreigners are the main share holders (which is the way to acquire properties in Croatia for those countries without reciprocity), are not taken into account because the data available is only related to physical persons, thus, not reflecting the real data of the market volume. 2.2

Factors influencing residential tourism Factors

Spain

Croatia

Laws and regulations

Local governments have the power to decide about the use of their land within the municipality. They are financed by different taxes, such as the property transfer and building construction permission taxes.

The Croatian government realized the need for foreign investments, thus it adjusted the laws and regulations for easier foreign capital inflow, although difficulties remain for foreigners to acquire homes.

EU membership and physical person investments

Spain has been in the EU since 1986, and has been benefiting from price stability, low interest rates and structural funds to increase Spanish GDP.

Entering the EU is a critical factor, since many foreign citizens have to open a company to acquire real estate, if reciprocity does not apply.

Tax laws

Spanish laws do not offer incentives to foreign investors. There is high financial pressure from the government, although there are no taxes in repatriation of financial resources.

In Croatia there are favourable tax laws for foreign investors, such as no repatriation taxes.

Affordable prices

Spain has benefited for a long time from relatively low prices, with a constant price growth until present. However, price increases have started to slow-down since the beginning of 2007.

Due to the war history in the past decade, some areas still have low land prices and most of the land is developing slowly thus maintaining the low prices. Consequently, in Croatia (depending on the area) prices can still be very attractive.

ROI (Return on Investment) prospects

Average prices for residences in Spain increased an average of 11% from 1997 to 2007. After a long period of relatively high ROI, at present the sector is facing a slow-down that is negatively affecting the prices, ROI, employment rates, etc.

Price increases have slowed down over the last year though it is expected that they will grow slightly over the next two years, and grow at a higher rate during the following years, with their entrance to the EU.

Positioning

Spain has a good image for tourism at an international level and is well positioned in the tourism and residential market. The concept of the “European Florida” occurs in the south of Spain. Current main competitors are still in the Mediterranean (Morocco, Greece and Turkey).

The Croatian coast is positioning itself as an upscale and exclusive coastal destination, and it aims to compete with the French Riviera or the Italy’s, Tuscany. Currently, prices in Croatia are 30 – 40% cheaper than in these regions.

Table 5: Residential tourism factors Source: National Institute for Statistics (INE), Grupo i (2007) and own illustration

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Jordi Datzira, Marco Julia-Eggert

2.3 Current models In order to compare both countries, a residential tourism model is defined, and includes the main factors that affect the development model of each country. Residential tourism model

•

Spain

Croatia

Coast development

Coast protection

No strict control on development, although there is the Spanish coastal law, which aims to protect the coast and to control new developments. In 2008, a new Construction Code was introduced by the Spanish government to improve construction quality.

•

Most beaches are public.

•

Urban plans are mostly defined by the local authorities, although they have to be approved by regional governments.

High density on the coast

•

Strict control on planning processes. Urban plans are defined by the Croatian central government and then rigidly applied in detail by the local authorities.

•

Building is forbidden within 100 meters of the sea (in new development areas).

•

Coastal area is public.

•

Urban plans determine the type of buildings to be developed (hotel, residential, etc.).

Low density (general)

•

New construction laws aim to control the development projects for residential purposes.

•

Buildings must not occupy more than 30% of the plot surface.

•

There is no clear ratio for new residential developments, because each region and municipality can define them according to their needs.

•

For residential use, usually plots of 600 square meters, with a total building volume of 400 square meters or of 6 apartments

•

A maximum of three floors plus a basement which is usually counted in the total permitted building volume

Main concept

Main concepts

•

National and international hotel chains and small and medium hotels

•

Small and medium hotels (aiming to attract quality international brands)

•

Small, medium and large holiday apartments, normally to let

•

Medium hotels and holiday apartments (not for sale)

•

Medium and large residential resorts which are inland but near to the coast, normally for sale and rent

•

Small and medium residential developments for sale and rent

Table 6: Residential tourism models Source: own illustration

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Spain and Croatia: Traditional versus new markets for residential tourism

2.4

Competitive advantages and disadvantages Competitive advantages Spain

Croatia From the country perspective

•

Quality of life: climate, especially in the south and the islands, gastronomy, culture, etc.

•

Quality of life: summer climate, especially on the coast, gastronomy, culture, natural landscape, etc.

•

Infrastructures with secondary international airports near seaside destinations that are used by low cost airlines, new motorways and high speed train lines

•

Infrastructures with new motorways being developed along the country, as well as secondary international airports and ports in some coastal destinations

•

Euro stability which eliminates uncertainties among price fluctuation and exchange rates

•

Exchange rate stability and economic growth

•

•

Proximity to EU markets due to the improvement of communication infrastructure

Proximity to source markets arriving by road, and other means of transport

•

Good annual rental returns for existing properties

•

Extensive national marketing has positioned the country as a favourite spot

•

Better financial conditions and prices than the ones of the main competitors (especially for France and Italy)

•

Relatively low interest rates and high return on investment that attracts investors from other activity sectors (banks, financial groups, etc.)

•

Image of Spain as a tourist destination

From its tourism property development model •

Diversified model of development based on leisure and entertainment, sports, theme parks, ports and marinas, golf courses, spa and wellness centres, etc.

•

Concrete and well defined model for future development, in accordance with the country’s positioning

Table 7: Competitive advantages Source: own illustration

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Jordi Datzira, Marco Julia-Eggert

Competitive disadvantages Spain

Croatia From the country perspective

•

Urban saturation, mainly on the coast and neighbouring municipalities along with growing demand pressure for residential holidays

•

Lower level of attractiveness for investment purposes, due to the continuous increase in land and property prices, interest rates, etc.

•

•

•

Legislation and laws related to the acquisition process of property and it is still not permitted for foreign physical persons.

•

Growing number of competitors in the Mediterranean as well as the Caribbean and South America

One of the most expensive non-EU countries for property purchase, with relatively high interest rates that affect the opportunities to invest in residential properties and the overall returns on investment

•

Climate change and drought, especially in the south, to aid development: golf courses, swimming pools, drinking water, etc.

Some urban plans still to be defined; there are small plots for developments and not always clear ownership titles.

•

High seasonality concentrated in summer and on the coast, with poor flight connections out of high season.

•

Lack of additional entertainment, activities, services (in comparison to more developed tourism countries)

•

Not a member of the EU yet, and therefore, no Euro currency

From its tourism property development model •

Property market bubble as a threat to the sector

•

Some local governments are highly financed through building permissions and taxes.

•

Promotion and commercialization systems are not appropriate and innovative to face the globalization process.

•

Lack of flexibility to adjust to different requirements (e.g. low density implies also overall higher land use, which in turn is not environmentally nor energetically cost efficient)

•

There is no specific model promoting the combination of tourism resorts mixed with residential ownership (hotel + holiday apartments or private residential ownership).

Table 8: Competitive disadvantages Source: own illustration

3 Conclusions Each country should try to find the right positioning to attract tourists, and to define proper residential tourism models. Residential tourism has to be balanced with speculative investments, since many people see the purchase of a property as a safe place to deposit their money.

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Spain and Croatia: Traditional versus new markets for residential tourism

The Croatian government fears that the development of residential tourism will also have an effect on “cold beds” which are only used for a short period of time throughout the year. Nevertheless, formulas such as making it easier for owners to rent their apartments through professional management companies, and fostering property rental with lower taxes, are formulas needed to encourage more investors to maximize the occupancy of their properties. On the other hand, zoning plans as well as building permits are tools that can be used to keep the balance between construction development and tourists visiting the country, thus, better statistical and research data on demand needs and supply characteristics is needed to help governments and developers to maintain the right balance on the development of residential tourism in each country. Furthermore, there are certain aspects that allow us to predict common aspects that especially developers (other than governments) need to consider, in order to be able to compete in a global tourism residential market, where competitors are not only European but also North African, as well as South America. It seems clear that there is a need to find a balance between development and preservation of the environment and in this sense, any destination has to make the effort to find a sustainable development model according to international quality standards in order to survive in the future. There is a need to go further in the conceptualisation process of residential tourism, and therefore, to move from the classic holiday homes concept to innovative integrated sustainable resorts. Therefore, new residential developments that are to attract tourist investments should focus on the following key aspects: – Full furniture service. – Full maintenance service. – Full rental management service. – Not only being attractive by the design and the quality of the property itself, but also by its surroundings and especially by the activities and services that these surroundings have to offer. To sum up, the Spanish residential tourism sector has been one of the pioneers in this field, and therefore, one from which every other country could take some valuable ideas in order to improve its own. The Spanish model is a rather flexible one in which lately legislative and regulative norms have been defined, and the Croatian model is a rather rigid one, still having to prove its efficiency, attractiveness and value in the market.

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Bibliography Antón S ’Demanda turística i protecció del litoral: un horitzó possible’ in Papers, regió metropolitana de Barcelona, num 41, pag 69–84. 2004 Barcelona. APCE (Asociación de promotores constructors de España) 2006 ’Informe de coyuntura. Madrid. Costa, A ’Un anàlisi de la despesa dels municipis turístics: aplicació al cas dels municipis espanyols’ in II Congres de Turisme de Catalunya. 2004. Barcelona. Colliers International. www.colliers.com. Croatia. Drzavni Zavod za Statistiku (Croatian Statistics Bureau), Hrvatska Gospodarska Komora (Croatian Chamber of Economy). www.hgk.hr. Grupo i (2006) ’El mercado de la vivienda vacacional en España’. Hrvatska Narodna Banka. 2008. http://www.hnb.hr/statistika. Hrvatska Gospodarska Komora (Croatian Chamber of Economy). www.hgk.hr. IET (Instituto de Estudios turísticos) (2003) ’Turismo residencial’. Ministerio de Economía. Madrid. INE (Instituto Nacional de Estadística) www.ine.es. Madrid. Lighthouse Spain (2005) ’Spain reinvented: the shift from package holidays to residential tourism’. Macroeconomic Analysis centre (2008). Mazon, T y Aledo, A. Eds. (2005) ’Turismo residencial y cambio social: nuevas perspectivas teóricas y empíricas’. Alacant. Mazars Turismo (2002) ’Aproximación al turismo residencial’ Fitur Residencial. Madrid. RealEstateCroatia.com (2008). Saló, A (2006) ’Estudi sobre l’habitatge a la demarcació de Girona: habitatges principals, segones residències i apartaments turístics’. Universitat de Girona. Solé, J ’El finançament possible de la Generalitat i dels ajuntaments vers el turisme’. 2004. Universitat de Barcelona. http://www.centarnekretnina.net. http://www.burza-nekretnina.com. http://www.dzs.hr/. http://www.hgkreg.hgk.hr. http://www.hosteltur.com. http//www.residentialspain.es. http://www.spanishpropertyinsight.com/. http://www.vecernjilist.hr.

24

Hotel resorts in South Tyrol: Drivers and constraints for a real estate-based development

Harald Pechlaner, Lisa Kofink & Marcus Herntrei

Abstract Resort development is nowadays in many regions based on the expansion of real property. This study examines, to what extent tendencies of real estate development exist in South Tyrol today. So far it can be stated, that hoteliers still focus on traditional tourist accommodation. However, related to the traditional hotel company further real estate-based investments are done. The main focus lies on infrastructures and services that allow a stronger diversification and positioning of the enterprise. As main constraint the provincial building and planning act is considered. Strategies can be distinguished according to the resorts’ location. Whereas resorts outside of towns prefer to build new hotels, resorts located inside of towns are expanding their company by buying existing hotels and cooperating with local service providers. Keywords: Hotel resort, real estate development, corporate growth strategies

1 Introduction In many regions, especially in the Alps, the development of tourism started with the establishment of Grand hotels at the end of the 19th century, the first resort hotels. These hotels of the Belle Époque offered their guests all kinds of services and a large number of special amenities, among them restaurants, shops, concert halls, tennis courts and golf yards, stables, ski slopes, etc. (Pechlaner 2005). Over the years, these early resorts lost ground and have been integrated step by step in their community-based tourist destinations. Today, an opposite trend can be observed. In South Tyrol and elsewhere, resort hotels are founded within community-based destinations, and existing hotels are upgraded into hotel resorts (Hartl 2002). This trend seems to be forced by an international concentration in the hotel sector and by new hybrid types of accommodation, both being driven by real estate (cf. Dorward 2006).

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

But also special conditions in the Alps, such as the necessity to build up tourist infrastructures with accompanying services within a short period of time, might act as a potential driver for resort development (Laesser 2005). Apart from the legal circumstances, other peculiarities of a mountain region, for example its topography, constitute important limits for real estate development. Due to its geomorphologic structure, the availability of land resources is rather low and limited to the valleys. The permanently inhabitable area amounts to 8% of the province’s total surface (Astat 2004). However, in this small area tourism is competing heavily with other types of land use, such as housing, leisure amenities or the demands of local economy, especially agriculture. Therefore, land consumption in South Tyrol is limited and very expensive.

1.1 Spatial planning restrictions The conditions for real estate development in South Tyrol have been rather restrictive, not only in the tourism sector. Therefore, real estate-driven phenomena like second homes have never reached the level of, for instance, certain Swiss tourist regions. As defined by the building and planning act 1997 for South Tyrol (cf. Autonomous Province of Bolzano-Bozen-South Tyrol 1997), new capacities for house building were mostly limited to the local population. The quantitative development of hotel infrastructure was subject to very strict regulations as well. Only those hotels, already existing before 1988 could enlarge their number of beds up to the total number existing in 1985. The aim was to enable disadvantaged enterprises to recover their original size. Additionally the number of allowed beds was limited according to the state of touristic development of the respective area (the less developed, the more opportunities). However, some exceptions have been provided enabling the evolvement of a number of rather extensive resort projects. The reform of the building and planning act in 2007 (cf. Autonomous Province of Bolzano-Bozen-South Tyrol 2007) opened some possibilities, especially for tourist accommodation. Nowadays municipalities can define so-called tourism-zones, where hotel businesses can develop even quantitatively. A certain limitation with regard to the state of touristic development is still remaining. The need for an extension of beds has however to be clearly verified in strategic and qualitative tourism development concepts, which have to be approved by the provincial government.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

1.2 Objective and research questions The objective of the study is to study the existence of tendencies for real estatebased resort development in South Tyrol, as already observed in other regions, in spite of a comparatively strict building and planning act and the generally low availability of land resources. The study wants to identify potential mechanisms for real estate-based resort development. Economic and real estate aspects will be considered apart from the restrictive building and planning law and the low availability of land in South Tyrol. Based on that analysis, the future perspectives of hotels in South Tyrol changing into resorts by means of real estate development will be discussed. To this end, the following research questions (cf. Gläser & Laudel 2004) have been elaborated: – What are the elements of real estate-based resort development, and what are its characteristics in South Tyrol? – What drivers and constraints for real estate-based resort development, both market- and resource-oriented, can be identified? – What are future perspectives for the real estate-based development of hotel resorts in South Tyrol?

2 Methodology In a first step, the characteristics and elements of real estate-based resort development in South Tyrol had been collected. The objective was to get information on the different elements and the respective targets established. It should be analyzed to what extent strategies of real estate-based development have already been applied in South Tyrol. Secondly, the drivers and constraints of resort development in South Tyrol were analyzed. General information on drivers and constraints of real estate-based resort development and on other circumstances had been collected by secondary research. Both analyses were then submitted to a qualitative empiric survey. Structured interviews (cf. Gläser & Laudel 2004) have been held with managers of hotel resorts in South Tyrol and tourism experts in the province. The aim of the survey was to analyze the relevance of identified drivers and constraints for South Tyrol, and to collect the peculiarities of the province’s resort structure. Furthermore, it serves to collect evaluations on future perspectives for real estate-based resort development in South Tyrol on the part of key actors.

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

The sample of hotel managers was chosen with support of the board of tourism managers of South Tyrol. For South Tyrol’s different tourist areas they proposed the three most important hotel resorts defined as follows (following Inskeep 1991 and WTO 1993² cited in Bieger 2002: 55): A hotel resort is a clearly defined spatial area, where the hotel enterprise offers in an integrated way all services and attractions the tourist considers necessary for his stay. Therefore, the hotel resort itself can be considered a destination. The offered services are often combined to targeted packages in cooperation with local contractors. The hotel resort with the greatest focus on integrated products was then chosen as interview partner for each region. That led to a total of 10 qualitative interviews with resort managers or entrepreneurs. The interpretation of the interviews was based on a qualitative analysis using the MaxQDA program (cf. Kuckartz 2007). The data collected from the interviews was classified according to topic-related categories (cf. Gläser & Laudel 2004). A qualitative approach seems appropriate, as the study in hand has a clear case-study and descriptive character (cf. Gläser & Laudel 2004 and Mayring 2003). On the basis of the analysis, it has been possible to find answers to the proposed research questions and to identify an interesting approach to resort development in South Tyrol.

3 Results Before dealing in depth with the aspects of real estate-based corporate development in the following chapters, first of all the paper takes a closer look at several organizational characteristics of the accommodation facilities interviewed. All companies surveyed are family businesses, i.e. in some cases the companies have been owned by families for three generations, and have been managed by them ever since. In most cases, several family members are active in the company. The roles and responsibilities of various family members are always clearly defined, only in one case several family members are of equal rank in the normativestrategic business management. The companies studied have a size of between 120 and 650 beds, sometimes distributed among several houses. With between 60 and 80%, their share of regular guests is very high. Between 80 and 95% of all guests are individual travelers. All companies stated their intention to achieve certain growth targets in terms of quality or quantity.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

3.1 Real estate-based development of hotel businesses In addition to the common grounds already mentioned, there are great differences with respect to business strategy and real estate-based corporate development. Several companies are still concentrating strongly on the accommodation business. All other services, including real estate-based services, are only provided in order to improve the offer from the guest’s point of view. Other companies, however, pursue wide-ranging strategies of differentiation and integration, and offer their services to both house guests and externals. Apart from various forms of accommodation (classic hotel business, holiday apartments) and tourist offers (riding yards, golf courts), the companies integrated most strongly also offer indirect tourist services (hairdresser’s shop, medical practice). In addition to horizontally and vertically integrated fields, the survey also discovered one company with strong lateral integration (energy sector, wholesale trade).

3.1.1 Management of other hotels The classic combination of ownership and management of a hotel in the traditional sense still appears to be the most attractive model. Lease of external companies or takeover of traditional hotels for a limited period of time in the form of management contracts are met with almost unanimous approval among respondents, but for a number of different reasons. For several hoteliers the management of an external company represents a solution for the improvement of their cash flow for a limited period of time, while others see it as a chance to achieve long-term growth targets. For the realization of these goals, some of the interviewees are willing to become active beyond the borders of South Tyrol, while others think that this would exceed the management capacities of a family business by far. Most of the companies interviewed are investing in real property only at one site, the domicile of the original firm, in order to achieve as many synergies (economies of scale, scope and density) as possible. Several hoteliers receive offers for the management of a hotel once and again, but hardly any of the offered houses or locations is attractive enough. Few companies appear as operators of real estate-dependent, tourist-relevant services. Exceptions are bars and restaurants. The main reason stated is that the company’s competencies are concentrated in the field of traditional hotel business.

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3.1.2 Investment in other hotels There are very different opinions with regard to investment in accommodation real properties and real estate-based services. Several hoteliers think that further investment in real properties only makes sense if they are outside of the entrepreneurial area of liability and therefore contribute to personal risk management. On principle, entrepreneurs invest most capital in the accommodation facility and its real estate-based offers. If they had sufficient capital resources at their disposal, almost all hoteliers would also invest beyond the hotel industry, for reasons of competency and return mainly in the field of residential construction. Investments in accommodation facilities not operated by them are out of the question for all companies interviewed. The reason for that is that they think the success of their investment or the value of a real property may be put at risk through the possible mismanagement by the operator. For similar reasons many owners cannot imagine handing over the management of their hotel real property in somebody else’s hands. Others, however, see that as a chance to withdraw from the strenuous everyday work of a family business. Very few of the hoteliers interviewed would like to give investors a share in their family business. There is no reason for that at the moment, owing to still attractive financing expenses. According to one of the hoteliers interviewed, giving investors a share in the company must be accompanied by significant corporate growth increasing the value of the hotelier’s share in the company. Two hoteliers would like to make further investments in sales rooms, not so much from a land-economic point of view, but in order to bunch offers for their hotel guests. Owing to the lack of available property, or rather the building and planning act, however, they do not see any room for maneuver at the moment.

3.1.3 Selling the proper hotel business All of the companies interviewed agreed on this point. At the moment nobody sees an advantage in selling his or her own company and continue concentrating upon the management of the company. Only one hotelier stated that this is an option that cannot be ruled out completely for the future. One of the owners substantiated the refusal of the sale option with the fact that in case of selling the hotel property at market price, nothing would be left to justify the sale after the deduction of corporate debts and taxes.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

3.2 Parameters of real estate management The following chapters give an overview of the factors indicated and seen as determinants with regard to their real estate management by the hoteliers interviewed. In the course of the interviews, the significance of the factors as driver or constraint for the development of resorts was always discussed as well (fig. 1).

Figure 1: Overview of drivers and constraints

On the one hand, a distinction between determinants which strongly depend on the arrangement of the actual company and the available resources and competencies was made. Secondly, factors which are mainly dictated by customers’ demand as well as competition on the market were discussed. And finally the conditions of operative environment were assessed.

3.2.1

Resource-based parameters

Size of the hotel business The size of the company is a central element for investment decisions. A certain size is necessary to manage hotel companies successfully. In most cases, qualitative growth is associated with quantitative growth as well, as the running expenses for costly and extensive infrastructures can only be born with a certain minimum number of beds. As quantitative growth has not been possible in South Tyrol for a long time (see chapter 3.2.2), up to now many of the small and medium-sized companies have suffered an investment backlog.

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According to the interviews carried out, an average South Tyrolean hotel company aspires to a minimum of 100 beds. The majority of the companies surveyed is somewhere in the order of between 250 and 650 beds. Growth beyond this figure is not absolutely necessary for all companies, but is striven for by most of the interviewees driven by entrepreneurial ambition. Another advantage from the large hotel resorts’ point of view is that with their size they are in a position to appeal to different target groups. For the development of an integrated offer attractive for the guest, in most cases based on real estate-based offers, a certain company size is indispensable. Only one of the examined companies with much less than 100 beds defeats that, demonstrating that sustainable financing of offers is also possible through good pricing policy and an improvement of the share of wallet. Nevertheless, for the vast majority of the companies surveyed, reaching a sufficient company size is a clear driver towards the development of a hotel resort. Risk spreading Against the backdrop of the industry’s high risk, risk spreading seems advisable. Still, the strategies pursued in the examined companies differ greatly. Spreading mostly concerns investments within the same industry. For example, additional hotel companies were and are taken over or leased in order to generate cash flow for the main company in the short or medium term. A majority of investments in real estate-based services also help to increase the degree of utilization of the own company and do not pursue any direct profit objectives. In most cases these newly created services are assimilated by the family business and no additional operating or associated companies are formed. As a whole, opinions concerning real estatebased risk spreading are divided. No clear identification as driver or constraint of resort development has been possible. In the few companies in which external real estate-based risk spreading takes place, two strategies can be identified. One part of investments refers to real properties outside the trade, for example for retailing or apartments. The other part remains within its trade and invests in additional hotel real properties. Excessive indebtedness According to the interviewees more disturbing financial situations are to be expected in the years to come. Although the debt situation in South Tyrol is considered to be better compared, for example, to Austria, it is still seen as worrying. Several hoteliers are said to have significantly overdrawn their credit facilities for investments. As a rule, the credits obtained cannot be paid off within the established terms.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

Nowadays, new investments considered to be necessary every five years by most interviewees are up against an average credit period of between 10 and 20 years. As a result, the entrepreneurs asked reckon with a growing number of market withdrawals, which will be accompanied by a drop in prices on the hotel real estate market. An increase in takeovers by external investors is expected, which for their part would favor a development towards resorts. It is said that there already are isolated examples even in South Tyrol. Need for investment on the part of the entrepreneur himself Due to their companies’ low profitability, most hoteliers do not consider investments necessary. If it were possible to invest free capital, speculative investments would be out of the question. Some hoteliers would be willing to make mediumterm or long-term investments in real properties. The need for investment is not really seen as a direct driver for real estate-based resort development, as the real estate market is currently considered to be too risky. Required competencies Several competencies, going far beyond the management of traditional hotels, are required for the extension of a hotel company into a resort. This is true, in particular, if investments are made in other industries. In South Tyrol in most cases there is a lack of know-how required to become active in the real estate market outside of the traditional accommodation sector (in which extensive competencies are available). Extensive knowledge of the real estate market has only been available in very few of the examined cases. In these cases, real estate-based expansions actually are a possibility and are put into practice as well. The vast majority of the interviewees, however, state a lack of competencies that prevents real estate-based resort development in South Tyrol. “Most (South Tyrolean) hoteliers are good landlords, but bad entrepreneurs.” Successor establishment In the course of the years to come, a great number of companies will be confronted with the challenge of successor establishment. The examined companies have already been through at least one company transfer. One of the companies surveyed is currently going through the handover phase. In most cases, the succession was coupled with qualitative and quantitative growth as well as a differentiation strategy. In one case the parent generation arranged the successor establishment to several children by purchasing several additional accommodation facilities prior to the transfer. This way, one part of the company was transferred to each of the successors.

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

More often, however, the transfer is accompanied by reconstruction and expansion on the part of the succeeding generation, and existing economic models are taken apart. The companies surveyed are working on the assumption that in future problems of succession in South Tyrol will result in increased resort development. A great number of companies had not made major investments for a long time. In the context of succession this results in strong pressure to act. Owing to the low profitability of the traditional hotel business, many members of the succeeding generation are not willing to take the risk of investment. Therefore, an increase of market withdrawals is expected. As a result, this would lead to the acquisition of hotel real properties for sale by existing hotels or by other investors. For both cases the interviewees predicted a development towards hotel resorts. Structure of ownership The structure of ownership is characterized by a great number of family businesses (Pechlaner et al. 2003). Most of the companies are managed by the second or third generation. In many cases, the strategic management of the companies has already been assumed by one of the heirs, with the rest of the existing siblings involved in other functions (as operators or owners of parts of the company and real properties, as heads of internal departments), but almost always as associates. In contrast to big hotel chains, according to the respondents there is a strong emotional bond of the proprietors with the company. The sense of responsibility not only for the company and its staff, but also for the family, complicates the switchover to alternative concepts of running the company. The same business model has been applied for many generations. Due to ponderousness and innovation resistance, interviewees rather consider the factor of ownership structure to be an impediment to the development of the hotel real property and the company towards a resort. This impediment, however, is not always considered to be insurmountable. The answers underscore that a family structure allows developments that would not be possible with external partners. The emotional bond with the company is an assessment factor, for example in case of capital procurement.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

3.2.2

Market-based parameters

Availability of capital According to the hoteliers questioned, in South Tyrol the lending behavior of the banks does not cause any problems yet. General conditions such as capital rules on the part of the European Union to the banks (see European Parliament and the Council 2006) are not significantly perceptible yet. An important role in South Tyrol is due to the “principal bank”. Longstanding relationship and good knowledge of the company also have a good effect on lending behavior. Even so, now and then companies also cooperate with other Italian or foreign banks, which offer better conditions, but require more accurate credit ratings and analysis of corporate planning. The latter is generally becoming more important for lending in South Tyrol. In the medium term, interviewees expect strong firming up of control mechanisms as well as more rigid lending behavior on the part of the banks. As a result, investments are only planned in small steps or postponed entirely. Special market demands During the last years, hotels in South Tyrol have registered strong demand in the field of family holidays. This prompts many hotel companies to specialize in this customer segment. The family oriented demand for example caused a renaissance of the model “farm holidays”. The resort operators have identified that demand and see the chance for cooperation or to integrate that special form of accommodation into their offers. An advantage might also be the reduction of resistance against resorts by integrating small local entrepreneurs. Respondents also observed that the guests from new source markets make other demands (with respect to size or variety of products), corresponding more to an integrated hotel resort than to the offers of the South Tyrolean family businesses. Differentiated willingness to pay Social changes during the last years also resulted in changing consumer behavior. Among other things, this also led to the customers’ differentiated willingness to pay, which can be felt in South Tyrol as well. Either low-budget-offers or highpriced segments are demanded. However, one problem is constituted by the fact, that guests, who are not willing to pay much, do not renounce cost and infrastructure intensive offers, such as wellness.

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

The larger and more differentiated, i.e. the more similar to a resort, a company is, the better it is prepared to meet the guests’ various demands. Accordingly, most of the hotel businesses surveyed offer different categories with different combinations of services. One of the examined companies offers exclusive services only for customers with high willingness to pay. The consequence for traditional accommodation without the possibility to differentiate would be to run either a 5-star hotel or a youth hostel, as in these cases the accommodation category and the products associated with it coincide. Growing competition The industry’s pressure to adapt is said to cause the companies to be better than others. This means that they should stand out from other companies through product innovation and quality. In this respect, growing competition may be seen as a driving force for real estate-based resort development. The pressure to adapt takes effects towards diversification and/or integration, particularly towards the acquisition of real estate-based offers. But competitive pressure alone rarely is the sole cause of expansion. Winners are often only those companies which detect trends early on and choose a strategic product focus. Not only prices, but above all entire packages decide on a company’s position. In this context, resorts are a recipe for success (cf. Falkensteiner case study in Pechlaner et al. 2005). Utilized capacity and seasonality With the development of their hotel businesses into a more integrated model, all entrepreneurs questioned had been able to increase their capacity utilization and/or to reduce the seasonality of demand. The total capacity utilization of the companies amounts to up to 140%. Periods of operation amount to more than ten months a year. This makes it possible to develop specific offers and infrastructures for the low season. The efforts to establish South Tyrol as an all-year destination promote resort development, as with the enlargement of season the dependence of the destination on such large differentiated structures, such as resorts, increases. Need for investment by others Enquiries regarding involvement of international investors or private equity funds in South Tyrolean hotel companies have not been observed yet. If interested parties should turn up in future, however, it is expected that they would prefer to invest in existing resort structures or convert small companies into such resorts. Local entrepreneurs are on the defensive against (large) international investors. The wish to keep the tourist trade in local hands prevails.

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Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

As main reason for the absence of international investors the interviewees state the poor chances of making good profit in South Tyrol. In addition, the companies are too small and/or the destination is not within easy reach for remote source markets. According to that the absence of foreign investors goes back to an accumulation of the parameters. Decreasing revenue A majority of the hoteliers surveyed state diminishing results in traditional hotel business. This is said to affect the low-price and medium-price segment in particular. From this point of view a differentiation and expansion into a resort is quite attractive. One or the other hotelier, however, also makes out chances with topquality offers in the pure hotel business. The low level of prices for overnight stays in South Tyrol is considered to be the cause of the drop in earnings. This result in the fact that it is not possible to generate the reserves required for further investments.

3.2.3

External environmental parameters

Management of the destination The influence of the regional tourism board (Südtirol Marketing Gesellschaft) SMG as destination management organization (DMO) on resort development is judged very differently or even inconsistently by the interviewees. In the last years, the DMO started to reinforce its campaigns in Great Britain and the states of Eastern Europe in order to get the respective source markets going. With this strategy the DMO is said to further a development towards hotel resorts, as these markets are less familiar with the type of family business predominant in this country. Guests from these countries are said to prefer larger structures. Only one hotelier, on the other hand, is convinced that under the influence of South Tyrolean politics the DMO is supporting family businesses and accommodation companies structured in small units. Therefore, the DMO is said to be able to affect the accommodation model by controlling tourist target groups. Spatial planning restrictions The spatial planning so far is seen as one of the most fundamental constraints of future hotel and resort development. The strict limitation in force during the last years has permitted quantitative growth only in selected regions of South Tyrol with underdeveloped tourist offers.

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

Therefore, even companies owning suitable areas have only been able to use these parcels for qualitative expansion such as wellness or sports facilities, investments which are strongly linked to the offered products. Most hoteliers are pinning their hopes on the reformed building and planning act. In future, a majority of the interviewees expect more elbowroom for investment in real property through the identification of tourist areas, inside of which a coordinated degree of quantitative and qualitative growth should be possible. Investments in real estate to finance the actual hotel business (for example through the sale of holiday apartments) are said to be absolutely impossible in South Tyrol. Holiday real property must not be sold to foreigners. The objective of this regulation is the prevention of second homes and "cold beds". Therefore, models of fractional ownership have been ruled out as well. Availability of land resources for building Owing to its topographic situation, in South Tyrol there is a great shortage of development areas for all business sectors. This lack has a negative effect on land prices, which are comparatively high. On principle, development areas on the outskirts of towns and villages are cheaper than near the centers. Therefore, building new hotel real properties is said to be made more difficult. Especially larger areas, like those that would be required for resort-like structures, are extremely hard to obtain. In addition the interviewees state that available parcels rarely border on the original premises, but are mostly located in areas less attractive for tourism. The only way out of this dilemma is said to be the acquisition of existing real properties. These properties should then either be converted or demolished and rebuilt.

4

Conclusions

4.1 Perspectives for resort development in South Tyrol According to the discussion above, the survey revealed differences in terms of the strategy pursued by the hoteliers and their attitude with respect to the aspects of corporate development concerning land economy. In this context, the applied strategy seems to depend on the location of the own hotel resort. One can make a distinction between central locations and locations outside of municipal areas.

38

Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

4.1.1 Locations outside of towns The hotel resorts in areas outside of municipal areas, for the most part 4-star houses, are surrounded by agricultural green spaces. Their locations are usually identified as areas with little developed tourism. That’s why, provided that such expansion is supported by local politicians and promoted by spatial planning, in most of these cases there are sufficient possibilities of quantitative as well as qualitative expansion. Owing to the given possibilities, the studied hotel resorts located outside of municipal areas pursue expansion strategies aiming at resort development. The quantitative expansion these resorts are striving for takes place in consideration of the already distinct differentiation of the willingness to pay, quite often towards the 3-star segment. Altogether, however, companies are striving for diversified offers on various quality levels. On account of the legal situation, outside of municipal areas the construction of hybrid forms of accommodation and the alienation of apartments to finance investments is out of the question as well. Due to the location outside of municipal areas and the mostly low intensity of tourism resulting in a lack of providers of tourist and tourist-relevant services, the hotel resorts situated in the open land make a great effort to pursue the development of real estate-based offers in the sense of qualitative expansion and vertical integration inside and outside of the essential tourist performances (e.g. wholesale and food trade, energy industry, etc.). Cooperation with other providers of tourist services is rather unusual, the services offered are mostly provided by the company itself. So these companies pursue the idea of a resort in the narrower sense. It has been possible to observe that especially the big hotel resorts outside of municipal areas offer a relatively wide range of products with the objective to appeal to various target groups.

4.1.2 Locations inside of towns The hotel resorts located in village centers are lacking green spaces, and therefore quantitative possibilities of expansion. In addition, these sites are mostly areas with highly developed tourism, which may not be further developed due to the building and planning act. As a result, the hotel resorts located in village centers are pursuing other strategies than the companies surrounded by grassland. The former have less floorspace and fewer beds, and are mainly positioned in the 5-star segment. Hence these hotel resorts are betting more on solvent guests than on mass tourism.

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

Until now, no diminished willingness to pay in these hotel resorts has been observed, the differentiation of the willingness to pay, on the contrary, appears in the presence of a wealthy, international clientele, for which separate, markedly exclusive structures and offers are about to be created in future. In these cases the positioning occurs upwards instead of downwards. The development of real estate-based services is pursued less intensively not only due to the lack of building sites, but also owing to the anchoring of the own company in the deep-rooted village structures. The resulting social obligations prevent stronger vertical integration of the hotel resort. Accessorial services for the guest in the sense of integrated offers are provided by cooperation with other local service providers. This cooperation is favored by local networks existing for several generations. Obviously, these networks favor an approach to be called the “cooperative resort development model” below. However, this cooperation is to be further elaborated (cf. Pechlaner & Raich 2007). Today’s hotel resorts in the village centers excel by a more distinct focus on products than most large resorts located outside of municipal areas. Moreover, the operators of the hotels at central locations have realized long ago that even if they can fetch comparatively high prices, more beds will be necessary in future to be able to offer all services to ever more demanding guests, and to be able to finance these services as well. Due to the lack of building sites, it is not possible to succeed in safeguarding the competitiveness through expansion, but mainly through cooperation. In the context of the survey it has been possible to establish such approaches in three out of four places. These approaches had different forms and properties. The simplest form of cooperation observed is one between two neighboring hotels, which have been sharing their infrastructures for some time and fared very will with this attempt, so that the scope of cooperation is to be widened and the form of cooperation to be intensified. For this purpose they are currently thinking about taking the next step from cooperation agreement to mutual involvement or merger. A long-term approach for the expansion of hotel resorts located at village centers are holding companies, which have newly been established in a few cases. Local hoteliers join forces and acquire an accommodation facility that has run into financial plight, and the one hotelier who is able to achieve the biggest synergetic effects will take over the management of the newly built and radically modernized house. In another village the establishment of a rescue company comprising financially strong local entrepreneurs is currently discussed. The objective of this cooperation will be to buy up as many as possible of the accommodation facilities in the village that are to be closed, in order to make it more difficult for non-local investors and operators to enter the market.

40

Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

The development pursued by this approach leads to the assumption that slow but steady development, an organizational change from the existing community-based destination model towards a corporate-based resort model has been initiated under the leadership of local key companies (cf. Pechlaner 2005).

4.2 Outlook and further need for research According to the plan of the provincial government as well as the regional tourism board, South Tyrol should become an all-year destination in order to improve the value added and to increase its international competitiveness. The people responsible are mainly thinking of existing themes and products, for example the Christmas markets or similar events. Appropriate offers and perfectly arranged packages are intended to appeal to international guests as well. Aside from a few city hotels, only a handful of companies in South Tyrol are open all year round – the more integrated hotel resorts. In spells of bad weather and during the in-between season, these houses have a comprehensive range of offers available, and they are visible in foreign source markets not least because of their size. Therefore, these resort hotels already take up a key function for the development of the all-year destination South Tyrol. For certain is that in South Tyrol the development of resorts in the narrower sense is still being blocked by the natural environment as well as legal barriers. Moreover, the survey has shown that South Tyrolean hoteliers as well as local people strongly disapprove of foreign investors as well as big building projects. On the other hand, tendencies of resort development are already perceptible, in the classic sense at locations outside of municipal areas, and in the sense of the “cooperative resort development model” at locations inside of towns. These observations bring up the following questions, which demonstrate the need for further research to assess the future perspectives of the development of hotel resorts in South Tyrol:

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Harald Pechlaner, Lisa Kofink, Marcus Herntrei

–

– – –

42

To what extent can the “cooperative resort development model” deal with all aspects of an all-year destination and with all requirements of international guests? Does an internationally successful all-year destination require the big brands of the accommodation industry? Under which circumstances can the cooperative “South Tyrolean model” work in the long term, and what are factors or constraints of success? How can the networking quality within the “cooperative resort development model” as well as the contribution of each individual social and business partner be optimized?

Hotel resorts in South Tyrol: Drivers and constraints for a real-estate-based development

Bibliography Autonomous Province of Bolzano-Bozen-South Tyrol (1997): Building and Planning Act as amended on August 11th 1997. Bolzano. Autonomous Province of Bolzano-Bozen-South Tyrol (2007): Building and Planning Act as amended on July 2nd 2007. Bolzano. Bieger, T. (2002): Management von Destinationen. 5th edition. Oldenbourg Verlag. München, Wien. p. 55. Dorward, S. (2006): The evolution of Village Form and Its Relevance as a Model for Resort Design and Development. In: Clark, T. / Gill, A. / Hartmann, R. (eds.): Mountain Resort Planning and Development in an Era of Globalization. Cognizant Communication Corporation. New York. pp. 253–277. European Parliament and the Council (2006): Capital Requirement directive. Comprising Directive 2006/48/EC and Directive 2006/49/EC. Published in the official Journal of the European Union on June 30th, 2006 Gläser, J. & G. Laudel (2004): Experteninterviews und qualitative Inhaltsanalyse. VS Verlag für Sozialwissenschaften. Wiesbaden. Hartl, F (2002): Der Tourismus im Wandel – schaffen wir den Turn-Around? In: Luger, K. / F. Rest (eds.): Der Alpentourismus. Entwicklungspotenziale im Spannungsfeld von Kultur, Ökonomie und Ökologie. Innsbruck, Wien, München, Bozen. pp. 227–244. Kuckartz, U. (2007): Einführung in die computergestützte Analyse qualitativer Daten. 2. aktualisierte Auflage. VS Verlag für Sozialwissenschaften. Berlin. Laesser, C. (2005): Sportorientierte Innovationen als Triebfeder im alpinen Tourismus. In: Pechlaner, H. / P. Tschurtschenthaler / M. Peters / B. Pikkemaat. / M. Fuchs (eds.): Erfolg durch Innovation. Perspektiven für den Tourismus- und Dienstleistungssektor. Wiesbaden. pp. 209–223. Landesinstitut für Statistik Astat (2004): Dauersiedlungsgebiet in Südtirol. Astat-Schriftenreihe Nr. 108. Bozen. Mayring, P. (2003): Qualitative Inhaltsanalyse. Grundlagen und Techniken. Beltz Verlag. Weinheim, Basel. Pechlaner, H. / M. Summerer / F. Raich (2003): Unternehmertum in der Hotellerie – Probleme und Perspektiven am Beispiel Südtirols. In: Pechlaner, H. / M. Summerer / M. Peters / K. Matzler (eds): Unternehmertum in der Hotellerie – Management und Leadership. Arbeitshefte der Europäischen Akademie Bozen Nr. 37. Bozen. pp. 53–88. Pechlaner, H. (2005): Destinations- und Resortmanagement im Spannungsfeld. Unveröffentlichtes Arbeitspapier zum International Executive MBA Tourism&Leisure Management. Bozen. Pechlaner, H. / E.-M. Hammann (2005): Unternehmensgründung und Unternehmenswachstum – Unternehmensgruppe Falkensteiner. In: Pechlaner, H. / H. Hinterhuber / E.-M. Hammann (eds.): Unternehmertum und Unternehmensgründung – Grundlagen und Fallstudien. Deutscher Universitätsverlag. Wiesbaden. pp. 213–228. Pechlaner, H. / F. Raich (2007): Vom Entrepreneur zum „Intrapreneur“ – die Rolle des Unternehmers im Netzwerk Tourismus. In: Weiermair, K. / M. Peters / H. Pechlaner / M.-O. Kaiser (eds.): Unternehmertum im Tourismus – Führen mit Erneuerungen. Erich Schmidt Verlag. Berlin. pp. 111–125.

43

Real estate market for long stay tourists and expatriates in Phuket

Manat Chaisawat & Oraphan Tungsomboon

Abstract The study of real estate market for long stay tourists and expatriates in Phuket, was designed to identify the factors influencing the decision making process for choosing a real estate in Phuket. The population of the study were long stay tourists and expatriates who were living there at the end of 2006 as well as the property developers. The total samples of 392 were selected from both long stay tourists and expatriates proportionally to their population. The sample size of 43 developers was also selected from the population of 76 projects. The findings indicated that product, price, people, marketing mix factors were rated at high level of significance for both of long stay tourists and expatriates in choosing the real estate in Phuket. Physical evidence was rated at the highest importance level for expatriates as opposed to long stay tourists at high importance level. Place, promotion, and process were also rated at moderate level for both groups. Whereas, all of the marketing mix elements were rated by real estate developers at high level, except people and physical evidence factors at the highest level. The study suggested that both long stay tourist and expatriate target groups should be supported as a niche market to attract small volume and high spending of the visitors to Phuket in the long run. Keywords: Real estate, marketing strategies, long stay tourists, expatriates, Phuket, Thailand

1 Introduction According to Bank of Thailand statistics, tourism contributed 9% to the country’s GDP (Gross Domestic Product) in 2005 and international tourist arrivals reached 13.4 million in 2006. Historically, tourists stayed in hotel accommodation, but following a global trend there is a growing demand for villas and condominiums – particularly for long-stay tourists. There is also a growing demand from tourists are planning to buy their own resort properties in Thailand.

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Manat Chaisawat, Oraphan Tungsomboon

“Resort property development is an extension of the tourism industry and is an important element in attracting high income short and long-term stay tourists, says David Simister, chairman of CB Richard Ellis Thailand“(Propert Report, 2007, p.22). Phuket (The Pearl of the Andaman) has become a worldwide known for the first class tourist destination, attracting visitors from all over the world. Some of them dream about living here and owning some properties in Thailand. A development of property for international market has followed the path of tourism development. Phuket tourism revenue has increased by Baht (Bt) 2 billion, from Bt 75 billion in 2004 to Bt 77 billion in 2006 (The exchange rate approximately Bt 32 to USD 1). This is a big jump from the year after the disaster, when revenue tumbled to just Bt 28 billion in 2005. Phuket welcomed 4.7 million visitors in 2004 but only 4.5 in 2006. “Phuket real estate market keeps growing despite the ravages of the tsunami nearly two and a half year ago. Both foreign and Thai developers and buyers have descended upon the 523-square-kilometre island, driving up land and property prices and spawning more and more premium and super-premium projects. After one or two visits, many tourists decide to stay on. These foreigners are the engines driving the property boom. Real estate consultant and Thai Appraisal Foundation chairman Sopon Pornchokechai says foreign property investment outpaced that by Thai buyers by Bt 38 billion in 2006. Thai bought property worth about Bt 32 billion, while foreigners spent Bt 70 billion. According to the general manager of Raimon Land’s Phuket operation, Steve Brajak, only 35% of foreign buyers in Phuket actually live in Thailand. Most of them are expatriates such as Hong Kong, Singapore and China, who return once a year for up to a month“ (The Nation, Monday, April 30, 2007, 1C). The island of Phuket has seen the major growth of high end home development in recent years. Phuket is one of the fastest growing property markets in the world. All independent indicators predict that 2 million Europeans will seek property in Southern Thailand during the next 10 years (Permpoolsab, 2006). Thailand National Statistics Institute predicts that immigrant population of Thailand will rise by as much as 5.5 million people by 2010. Therefore, rising demand for property will continue to fuel the growth of the Phuket property market for many years to come. The key statistics of land and property in Phuket indicated as follow (The Nation, Monday, April 30, 2007): – In the first quarter of 2007, 81 residential projects were launched offering a total of 9,230 units with combined value of Bt 32.5 billion. So far, 3,476 units, or 62% of the total, have been sold. In terms of value, the sold units account for 53% of the total.

46

Real estate market for long stay tourists and expatriates in Phuket

–

– –

–

In 2007, developers were licensed to construct 3,315 housing units with combined value of Bt 11.7 billion. They were equal to 7% of residential units launched in Bangkok and peripheral areas. In the first quarter, 878 units were launched, valued at Bt 3.1 billion. The average resort home price is Bt 25.3 million, and the average price of a condominium unit is Bt 31 million. Due to limited resources, a 1.6 –hectare beachfront land plot can cost Bt 25 million, or Bt 15,625 per square metre. On Patong Beach a plot of the same size can cost Bt 40 million. Land prices had appreciated during the past two years. Beachfront plots on Had Mai Khao were quoted at Bt 5 million per rai (Bt 31.25 million per hectare) in 2007, compared to Bt 4 million in April 2006. A plot on Rawai Beach was priced at Bt 10 million per rai in 2007, compared to Bt 7 million two years ago.

Long stay visitors to Thailand are steadily on the rise, regarding to retirees and visiting friends and relatives of the large expatriate community in the kingdom. Long stay visitors from the industrialized countries of the ’North’ as retirees and pensioners find it much more cost-effective to escape their cold winters by staying relatively inexpensively in Thailand. This trend has accelerated in recent years regarding to the strength of the Euro. Many retirement homes are coming up in parts of Thailand to cater to this growing market segment According to Tourism Authority of Thailand statistics, in 2004, a total of 568,620 visitors stayed in Thailand for more than 30 days. This was up by 7.15% from 2003 and comprised 4.88% of total visitor arrivals. The top five markets for long stay were Japan, United Kingdom, the United State, Germany and China. Another major market is Sweden (TAT, 2004). In recent years, Phuket has become more than just a spectacular holiday destination; it is now home to literally thousands of expatriates, who have found the tropical climate, stunning vistas and international standard facilities very much to their liking. The Germans make up the largest contingent of Phuket’s community of 12,000 expatriates out of a total population of some 300,000 (EXPAT, 2006). There is a wealth of recent and new property development on the island, offering a wide range of choices. The pioneer of property development in Phuket is Laguna Resorts & Hotels Public Company limited. The company owned by Banyan Tree Hotels & Resorts. This property started from an old tin mine as the founder of the property; Mr. Ho Kwon Ping mentioned “I still remember the day in the 1980s when Claire and I first came across a stretch of land by Bang Tao Bay (Thailand). It was a disused tin mine and not very attractive to many people. We purchased it on a whim.

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Manat Chaisawat, Oraphan Tungsomboon

We only found out later that it had been declared irreclaimable by a UN development report because of pollution from the mine“ (Hotel Investment outlook, September 2007, p. 23). Now the company was listed on the Stock Exchange of Thailand in 1993 and has combined hotels and real estate with an emphasis on quality and environmental protection, having received numerous environmental and tourism awards. Today, Laguna Phuket is a successful resort complex comprising six deluxe hotels, private villas, luxury spas, a shopping village, an 18-hole golf course and myriad recreation and leisure facilities. Laguna Phuket property developments include: 1992 Laguna Homes, 54 land plots 1993 Sheraton Island Villas, 52 units Allamanda Condominiums, 239 units 1997 Banyan Tree Two-bedroom Pool Villas, 12 units 2001-4 Laguna Residences, 49 units Laguna Townhomes, 64 units 2005 Banyan Tree Two-bedroom Pool Villas, 14 units 2006 Banyan Tree Double Pool Villas, 22 units Dusit Laguna Villas, 28 units. The other high-end property development in Phuket is Royal Phuket Marina (RPM). RPM, Thailand’s first world-class luxury lifestyle marina community rivalling top resort communities in Europe and the Caribean, is located on Phuket’s upand-coming eastern seaboard overlooking scenic Phang Nga Bay. It is a home to a Fisherman’s Wharf-style “Boardwalk“. Of restaurants, the island’s trendiest new spa and wellness centre, up-market shopping and recreational facilities include swimming pools, tennis courts and state of the art fitness centre. A 5-star hotel and exclusive private beach club on a nearby tropical island are also on offer (The Luxury Residences, 2007). RPM recognitions: “Best International Design“, 2007International Property Awards; “Marina Five Gold Anchors Award“, 2006-British Airways ’First Life’ Magazine “Best of Best“; “Best for Boating“, 2005-Conde Nast Publications; “A Great Place to Retire“, 2005-Forune Magazine. The marketing for real estate, specifically marketing strategy became essential to every developer nowadays as it is an important tool in creating and keeping customers by communicating to and giving the target market customers what they want, when they want it, where they want it, at a price they are willing and able to pay (Lewis and Chambers, 1999). A strong and consistent marketing message will help focus on the target market and highlights each real estate competitive advantages.

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Real estate market for long stay tourists and expatriates in Phuket

As aforementioned it found that long stay tourists and expatriates are one of the major real estate markets. David Wade wrote on the Tropical Homes Newsletter (2006) that the service apartment market in downtown Bangkok is expected to improve in the second half due to rising demand as reflected by the continued increase in number of expatriate. The rising number of expatriates in Thailand is boosting the demand for real estate. Moreover, according to the Alien Occupational Control Division of the Departments of Employment, the number of expatriates holding work permit in Bangkok totalled 64,352 as of May 2006, up 16.1% year on year.

2 The objectives of the study The objectives of study are (1) to investigate the real estate market for long stay tourists and expatriates in Phuket, and (2) to identify the factors influencing in the decision making process for long stay tourists and expatriates.

3 Methodology The population of the study comprised of two distinct groups, real estate developers and foreigners (long stay tourists and expatriates) who stayed in Phuket at the end of 2006. The sample size of 43 developers was selected from the total population of 76 projects by selecting only the selling price per unit over Bt 10 million. The total samples of 392 were selected from both long stay tourists and expatriates proportionally to their populations (7,227 long stay tourists and about 12,000 expatriates in Phuket) by using Taro Yamane method at 95% confidence level. The data gathered by the voluntary completion of questionnaires at the Phuket Immigration Office during March 12th to April 16th, 2007 as well as forty-three questionnaires were distributed to qualified real estate developments. The SPSS (Statistic Package for the Social Science) was employed to evaluate the final result of quantitative method. Marketing mix elements were measured in terms of their important to both populations of the study. The level of importances also was measured in 5 interval levels in likert scale: 1.00 – 1.80 = the lowest important, 1.81 – 2.60 = low important, 2.61 – 3.40 = moderate, 3.41 – 4.20 = high important, 4.21 – 5.00 = the highest important.

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Manat Chaisawat, Oraphan Tungsomboon

4 The results The findings from the study are as follow:

4.1 Long stays tourists and expatriates In terms of demographics variables: We found that long stay tourists, more than half of the samples were male with age mostly between 51–over 60 years old and come from Europe. Married status, single, with lower than bachelor degree education, unemployed/retired, earned USD 30,001–40,000 per year. While from 245 expatriates, more than half of the samples were male with age mostly between 31over 40 years old and come from United Kingdom. Most were single, with bachelor degree, company employee, earned USD 40,000-50,000 per year. In consideration of tourism behaviour: Most of long stay tourists spent time in Thailand more than 10–20 weeks a year. The majority of long stay tourists live in Chalong and Rawai areas, as it is quieter than any other places and they also prefer to live in this area in the future. Whereas, most of expatriates have been working in Thailand 1–5 years and also currently live in Chalong and Rawai areas and they prefer to live in Kamala and Surin areas more than Chalong and Rawai areas, as it is closer to their company. Both groups of sample like Thai style architecture and pay less than Bt 15,000 per month for their accommodation. Whereas, many expatriates already own a house in Phuket. The access to the information of real estate: Most of long stay tourists and expatriates got the information from friends and family, and Internet and also prefer to drive around to look for the property project. In terms of marketing mix elements for those long stay tourists and expatriates prefered are indicated in table 1.

50

Real estate market for long stay tourists and expatriates in Phuket Marketing mix elements

Long stay tourist

Expatriate

Sig.

Mean

SD

Mean

SD

level

Creditability of the developer

4.07

0.88

4.34

0.93

0.00*

Interior design

3.74

0.85

3.96

0.85

0.02*

Overall size of the accommodation

3.63

0.89

3.90

0.77

0.00*

Space in each room

3.70

0.83

3.98

0.76

0.00*

3.89

1.08

3.79

1.07

0.38

Enough parking

3.58

0.94

3.64

0.94

0.52

House included pool

3.01

1.15

2.92

1.18

0.47

Own garden area

3.45

0.98

3.65

0.96

0.04*

Layout of the house

3.73

0.92

3.65

0.96

0.22

Total

3.64

Product

Telephone line connected to high speed internet

3.77

Price Value for money

4.14

0.84

4.42

0.80

0.00*

Availability of finance

3.33

1.12

3.51

1.15

0.12

Favorable payment term

3.29

1.08

3.44

1.10

0.18

Electric and water rate

3.57

1.03

3.46

1.06

0.31

Total

3.58

3.71

Place Its location by the sea or nearby

3.76

0.99

3.63

1.03

0.25

Its location in the golf course or nearby

2.36

1.16

2.36

1.14

0.98

Near by working place

2.69

1.16

3.26

1.04

0.00*

Near by community and shopping mall

3.11

1.01

3.10

0.95

0.95

The convenience of transportation

3.29

1.11

3.16

1.06

0.28

Total

3.04

3.10

Promotion Sale promotion ex: discount, gift voucher etc

2.52

1.15

2.58

1.05

0.60

Advertising sign

2.61

1.05

2.46

1.00

0.16

3.20

1.12

3.34

1.16

0.25

Advertising on newspaper

2.74

1.08

2.66

0.99

0.45

Website promotion

3.04

1.10

2.93

1.06

0.33

Total

2.82

Knowledge and presentation from sale representative

2.79

51

Manat Chaisawat, Oraphan Tungsomboon Marketing mix elements

Long stay tourist

Expatriate

Sig.

Mean

SD

Mean

SD

level

Efficient/courteous service staff

3.71

0.98

4.03

0.84

0.00

Convenience in contacting staff

3.78

0.94

4.00

0.86

0.02

Easy communication with staff

3.87

0.88

4.15

0.86

0.00

Total

3.79

4.35

0.76

0.00*

4.26

0.76

0.00*

People

4.06

Physical Evidence Atmosphere around property and surounding 4.10

0.81

General appearance of the property

3.99

0.79

Total

4.01

4.31

Process Cleaning service provided

3.19

1.13

3.20

1.15

0.96

Security service provided

3.60

0.99

3.61

1.06

0.90

Availability of service/maintenance

3.39

0.99

3.57

1.00

0.08

Spaces common area

3.11

0.97

3.22

0.99

0.30

Additional service

2.94

1.15

3.03

1.13

0.43

Total

3.25

3.33

Remark: T-test was performed to identify statistically significant differences between groups at 95% of confidence level. Table 1: Marketing mix elements for those long stay tourists and expatriates preferred

Product: As indicated in table 1, credibility of the developer was the highest importance level of product factors for expatriates with significantly difference as opposed to high importance level for long stay tourists in decision making to choose real estate in Phuket. Price: Value for money was also the highest importance level of price factors for expatriates with significantly difference compared to long stay tourists at high level of importance. Place: Its location by the sea or nearby was at high important level in both long stay tourists and expatriates for choosing the real estate in Phuket. Promotion: Promotion was rated at a moderate level of importance for both groups. People: The average importance level of people factors for both groups was rated at high level, but the opinion was significantly difference between two groups.

52

Real estate market for long stay tourists and expatriates in Phuket

Physical evidence: Expatriates gave the highest importance level to physical evidence factors as opposed to high level of long stay tourists’ opinion. Process: The moderate level of importance was rated for both long stay tourists and expatriates regarding to process marketing element and there was no significantly difference among two groups. The relationship between important level of marketing mix factors (7Ps) and demographic variables By using Chi-Square test and one way ANOVA at 0.05 significance level, we found that there were 9 cases of significantly difference as follow: 1. Female long stay tourists gave high important level to place than male at moderate level. 2. Expatriates female rated price, place, person, and physical evidence at the highest importance level than male. 3. Long stay tourists who are between 31–41 years old rated place at high importance level more than other age groups. 4. Expatriate who is between 51–60 years old rated product at the highest importance level more than other age groups. 5. Expatriate who is between 41–50 years old rated price at high importance level more than other age groups. 6. Married long stay tourists gave high importance level to price more than other marital status groups. 7. Long stay tourists who earn income per year more than USD 70,001 gave the highest importance level to product factors more than other income groups. 8. Expatriates who earn income per year more than USD 70,001 gave the highest importance level to product factors, physical evidence factors, and process factors significantly difference more than other income groups. 9. Expatriate from Oceania rated product and physical evidence at the highest importance level more than other nationalities.

4.2 The real estate developers The findings from the 44 real estate developers as indicated in figure 2, we found that many real estate projects are located at Kamala, Chengtalay and Surin, Phuket town, and Kathu areas. The majority type of properties is a single house and a Villa home (72.27%). More than half of the qualified real estate developments have modern architecture style. Most of the development employed their advertisement method by attending property shows and utilizing Internet channel.

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Manat Chaisawat, Oraphan Tungsomboon

Marketing mix elements

Mean

Std.

Level of importance

Product Credibility of the developer

4.59

0.62

The highest

Layout of the house

4.02

0.79

High

Interior design

3.98

1.00

High

Space in each room

3.89

0.75

High

Enough parking

3.86

0.90

High

Overall size of the house

3.80

0.76

High

Own garden area

3.64

1.06

High

Telephone line

3.59

0.79

High

House inc. swimming pool

3.48

1.30

High

Average

3.87

High

Price Value for money

4.68

0.56

The highest

Favorable payment term

3.80

0.82

High

Availability of finance

3.77

1.01

High

Electric and water rate

3.30

0.79

Moderate

Average

3.89

High

Place The convenience of transportation

4.02

0.93

High

Its location by the sea or nearby

3.93

0.95

High

Near by community and shopping mall

3.57

0.93

High

Near by working place

3.43

0.85

High

Its location in the golf course or nearby

2.98

1.05

Moderate

Average

3.59

High

Promotion Knowledge and presentation from sale representative

4.23

0.74

The highest

Website promotion

3.89

1.02

High

Advertising sign

3.64

0.94

High

Sale promotion

3.50

1.05

High

Advertising on newspaper

3.23

1.05

Moderate

Average

3.70

High

People Efficient/courteous service staff

4.48

0.63

Convenience in contacting staff

4.39

0.72

The highest

Foreign language speaking staff

4.32

0.71

The highest

Average

4.40

54

The highest

The highest

Real estate market for long stay tourists and expatriates in Phuket

Marketing mix elements

Mean

Std.

Level of importance

Physical Evidence General appearance of the property

4.61

0.54

The highest

Atmosphere around the property

4.39

0.69

The highest

Average

4.50

The highest

Process Security service provided

4.45

0.66

The highest

Additional service

4.09

0.96

High

Spaces common area

4.09

0.77

High

Availability of service/maintenance

4.05

0.83

High

Cleaning service provided

3.89

1.02

High

Average

4.11

High

Table 2: Marketing mix elements for real estate develops paid attention

All of the marketing mix elements were rated by real estate developers at high level, except people and physical evidence factors at the highest level. Within each marketing mix, some variables were rated at the highest level. For example: “credibility of the developer for product factor; money value for price factor; knowledge and presentation from the sale representative for promotion factor“. All variables of people and physical evidence factors were rated at the highest level of significance for real estate developers. Security service provided in process of marketing element was rated at the highest level of significance.

5 Discussion and recommendation To investigate in the market of real estate for long stay tourists and expatriates in Phuket and to identify the factors influencing the decision making process of long stay tourists and expatriates in Phuket as follow. From the findings, the key target markets were people mostly over 41 years old (65.99%) and partly below 30 years old (19.73%) as well as unemployed/retired accounted for 41.50% of long stay tourists, the same findings of previous studies (Mill & Morrison, 1992; Natthakan, 2005), but not the same as Kasikorn Research Center survey (2006) indicated that most people, who want to have their own residences, are age between 25–30 and 31–40 years, representing 38.9 and 35.7% respectively. The majority of long stay tourists and expatriates live in Rawai and Chalong areas because they are more quiet place than near by the beach and other parts of Phuket. The most preferable place to stay for long stay tourist is still Rawai and Chalong areas, whereas, expatriates thought that the most desirable place to stay nowadays is Kamala and Surin area.

55

Manat Chaisawat, Oraphan Tungsomboon

The key factor for purchasing decision is location of projects. Long stay tourists would like to stay closer to the beach, so they can be more relax, whereas, expatriates would like to stay close to their working place to avoid the traffic problem. The favourite style of architecture for both groups is Thai style. The majority of long stay tourists and expatriates pay for their accommodation less than Bt 15,000 per month. Most of them stay in the apartment or rental house whereas 53% of expatriates have already purchased a house in Phuket. Most of them are the company owners who have their income of over USD 70,000 per year. The findings found that the most effective methods of promotion were a word of mouth from their friends and relatives and by driving around. From the findings, we found that product, price, people, marketing mix factors were rated at high level of significance for both long stay tourists and expatriates in choosing real estate in Phuket. Physical evidence was rated at the highest importance level for expatriates as opposed to long stay tourists at high important level. Place, promotion, and process were also rated at moderate level for both groups. These findings are similar with the previous studies of Patcha (2005) and Tanom (2004) that price, product, but not place, were factors influencing high class and medium class income groups in choosing the apartment in Kathu and Bangkok. Moreover, the study showed that there were statistically significant difference in the preferences of expatriates over long stay tourists at the highest importance level in “creditability of the developer“, “value for money“, “atmosphere around the property and surrounding“, and “general appearance of the property“. Most of them thought that the project with high credibility was more reliable and secure their investment. Both long stay tourists and expatriates rated product factor at high importance level but expatriates gave the level of high importance at statistically significant difference with some product elements more than long stay tourists, i.e., interior design, overall size of the accommodation, space in each room, and own garden area. The other elements of place and people factors also indicated that expatriates empasized the level of importance more than long stay tourists statistically with a significant difference. Those element are “Near by working place“, “Efficiency/ courteous service staff“, “Convenience in contacting staff“, “Easy communication with staff“.

56

Real estate market for long stay tourists and expatriates in Phuket

We can conclude from the findings that both long stay tourists and expatriates gave priority of marketing mix factors in the same order but expatriates emphasized more on the level of importance as of physical evidence, people, product, price, process, place, and promotion respectively. Natthakan (2005) stated that sea, sun and sand have always been popular with the international tourists, especially snowbirds group who come from cold countries during their winter season. One of the latest major growth markets are the USA and northern Europe who were inspired by climatic motivation which normally are dominated by older people. The input from the study is to effectively develop marketing strategies for long stay tourists and expatriates from the perspective of property developers. The market opportunities for both long stay tourists and expatriates in Phuket are in the high-end property development but from the findings it clearly seperated into 2 segments, lower high-end for long stay tourists and and upper high-end for expatriates. The following elements of marketing mix define of these two target markets. 1. Location: Kamala, Surin and Chergtalay are the preferable areas for expatriates compared to long stay tourists at Chalong and Rawai areas. 2. The most effective method of promotion for both groups are word of mouth from their friends and family, Internet and driving around by themselves. 3. The 7 marketing mix factors were ranked in the same order for both long stay tourists and expatriates but differ in the degree of the level of importance as aforementioned, specifically physical evidence elements were rated at the highest importance level for expatriates. 4. “Value for money“ is the most important element in price factor for both long stay tourists and expatriates. The implication for this factor is the quality of products must go in line with price. 5. People factor ranked second for both long stay tourists and expatriates. So it requires more efficient/courteous service staff with proficiency in related languages of target groups.

57

Manat Chaisawat, Oraphan Tungsomboon

6 Recommendation Phuket is an island with an intensive tourism development and tourism activities. As a result, it often has very quick and severe impacts on its natural resources. Phuket has started experiencing the pollution from dumping of solid and liquid wastes and the problem of freshwater shortages during high tourism season. If Phuket keeps growing with the high volume of tourist arrivals, its social carrying capacity will quickly reach the limits including overcrowding of beaches, noise pollution and exacerbating traffic congestion. It is recommended that both long stay tourist and expatriate target groups should be supported as a niche market to attract small volume and high spending of the visitors to Phuket in the long run. In terms of marketing strategies for long stay tourists and expatriates, the target markets should be clearly identified with different marketing mix elements to be developed.

58

Real estate market for long stay tourists and expatriates in Phuket

Bibliography Chambers, E. R. and Lewis, C. R. (2000). Marketing leadership in Hospitality. New York, United State of America: John Wiley & Sons, Inc. Chon, K. and Sparrowe, R. (2000). Welcome to Hospitality: An Introduction. Second Edition. New York, United State of America: Delmar Thomson Learning. Expat communities in Phuket. (n.d.). Retrieved November 16, 2006, from http://www.expat.com/communities/phuket. Hotels’ Investment Outlook. September 2007, Volume 10, No.3. Kotler, P. (2003). Marketing Management. Upper saddle, New Jersey: Prenticehall, Inc. Na Phairee, Nattakan. (2005). Long stay market possibility in Phuket. Master degree thesis, Prince of Songkla University, Phuket campus. (unpublished) MCOT (2006, October 31) Housing market still has room to grow. in 2006-2008: KRC. Retrieved December 20, 2006, from http://etna.mcot.net/query.php?nid=25714. Mill, Robert C. and Morrison, Alastair M. (1992). The touris system, 2nd ed. USA: Prentice-Hall. Panvuchatkul, Patcha. (2005). The factor influence to choose the apartment in Phuket. Master degree thesis, Prince of Songkla University, Phuket campus. (unpublished). Permpoolsab, A. (2006, October). Why Phuket?. All about home. 11, 6. Property Report Thailand. Issue # 31, April 2007, p. 22. The Luxury Residences (2007). Royal Phuket Marina, 68 Moo 2, Thepkrasattri Road,Kohkaew, Muang Phuket, 83200, Thailand, Website: www.royalphuketmarina.com, E-mail: [email protected]. The Nation. Business Extra. Monday, April 30, 2007, 1 c. Tourism Authority of Thailand. (n.d.). (2004). Thai long stay program. Retrieved December 10, 2006, from http://www.guidetothailand.com/links/Wade, D., (2006). Tropical Home Newsletter. Retrieved November 27, 2008, from http://www.tropical-homes.net/newsletter.

59

Section 2: Evolving Destination Market Business Models

61

Low cost tourism and real estate demand

Andrea Macchiavelli & Lara Cinesi

Abstract This paper deals with the relation between the development of low-cost flights and the purchase of holiday homes by foreign people, with reference to the Italian situation, where the phenomenon is very recent and not yet investigated. The lack of specific data that would allow connecting the two phenomena, isolating them from others involved, suggested to proceed by subsequent steps, analysing: a) the profile and behaviour of low-cost passengers and the impact on the tourism development of a destination; b) the foreign people that own a house in Italy, trying to identify the reason that led to this choice and thus to the development of a leisure tourism related to the ownership of holiday house; c) the features of the tourist real estate market; d) the relation between low-cost flights and the purchase of real estate properties by foreigners, through a survey on a sample of real estate agencies. This analysis allows to point out that there is a significant relation between the two phenomena, especially in some areas of the country, and to identify the main characteristics of this relation. Keywords: Low cost, holiday houses, real estate tourist market, ownership of holiday homes

1 Introduction Low cost air travel has rapidly spread all over Europe, causing deep changes in the management and in the economic balance of airlines and leading to an evident decrease of the price of travel. On the demand-side, these conditions contributed to a significant change in the way of travelling, fostering an increasing aircraft utilization and a greater ease of transfers within the main European cities, even for short trips. In Italy short holidays (less than 4 days) have rapidly spread: in 1997 they were 23.2 million, in 2007 43.7 million, and in 2010 50 million holidays are expected to be reached and perhaps exceeded (Mazzà 2008).

63

Andrea Macchiavelli, Lara Cinesi

This is obviously related to the development of low fare carriers, although some other factors can work together. Some well known tourist destinations have seen a significant growth in the number of tourist nights as a result of new flows of tourists willing to stay in the territory. Other areas, served by secondary airports with low traffic, have identified low cost flights as an opportunity for development and have strongly encouraged low cost carriers to choose their airport as a destination, even financing them. The spread of low cost flights produced a strong competition between many Italian airports (often with low passenger traffic), but it has also given the opportunity to reach, cheaply, those destinations which were almost unreachable due to their distance from the main routes. Using different sources, this paper aims at investigating the relation between the availability of low cost flights and the ownership of holiday homes by foreign owners. This is a well known phenomenon, frequently pointed out by tour operators and real estate agents, for which, however, quantitative data is not yet available. For the research, all sources had been taken into consideration; however, an objective quantification resulted non to be possible, due to lack of statistical data on the subject1. Nevertheless, the survey on a sample of real estate agencies helped to collect useful information to understand the dimension of the phenomenon in some areas of the country.

2

Low cost travellers and holiday property

2.1 Low cost traveller profile The profile of low cost traveller has not yet been well examined (Sigala & Baum 2004). There’s no doubt that this tourist has some features that make him different from the traditional air passenger, not only because he travels at a lower price and with less comfort (no frill on board, longer distance between the airport and the final destination, not frequent means of transport, unsecured refund, etc.), but mainly because he has a different concept of travelling. He is in fact ready to accept particular terms imposed by the carrier, which he normally would not choose, as a compensation for the cheap price of the ticket. The development of low cost airlines has partly influenced all passengers’ way of travelling, even those who use the traditional airlines. The policy of low cost carriers forced the traditional airlines to review their business strategies, in order to be competitive at least for some segments of the air transport market (Baccelli & Senn 2004).

___________________ 1

64

For instance, the number of foreigners owning a second home in Italy is not available.

Low cost tourism and real estate demand

This has produced a change in the travel patterns of all passengers, so that it is being asking if the low cost airlines will remain a limited segment or if they will continue to condition the evolution of the entire air transport system and therefore to standardize passengers’ behaviour. An analysis carried out on the passengers at Bergamo-Orio al Serio2 airport, underlines some features of the low cost flyer (Macchiavelli 2007). The most significant findings, concerning 2006, are summarised as follows3: – Most of travellers (58,1%) use low-cost flights for leisure purposes, but there are also other significant shares to be considered: 12,9% of the passengers are business travellers, 12,8% visit relatives and friends, 9,2% are students in Italy for a study trip (and the remaining for other reasons). – Only a minority of tourists has its final destination where the airport is located. In our case about 12% of the total passengers stay overnights in Bergamo and 33% in Milan. This means that low cost flights are mainly used for their cheap price, and more distant destinations are reached also through other means of transport. – The average expenditure on the territory of a low-cost passenger is not much different from the one of a traditional foreign tourist in Italy. In 2006, in fact, the daily average per capita spending for foreign passengers at Orio al Serio airport was EUR 78.7, only 10% less than the average spending of the foreign tourists in Italy. This information seems to support the hypothesis of a tourist who uses the low cost flight to save on the fare price, but who afterwards behaves similarly to a traditional foreign traveller. In principle, this interpretation can be considered good, but as a matter of fact, a deeper analysis reveals strong market segmentation. We can consider the flows from the three main countries connected to the airport of Orio al Serio by low cost flights: Great Britain (37.1% of foreign low-cost passengers), Spain (18.9%) and Germany (10%) and particularly we can consider some features of these passengers or their behaviour:

___________________ 2

3

The analysis has been carried out extracting the interviews to the passengers landed by low cost flights from the Survey on International Tourism conducted by “Ufficio Italiano dei Cambi” (nowadays named Bank of Italy) on a sample of 2500 foreign tourist in 2006. The analysis has been carried out extracting the interviews to the passengers landed by low cost flights from the Survey on International Tourism conducted by “Ufficio Italiano dei Cambi” (nowadays named Bank of Italy) on a sample of 2500 foreign tourist in 2006.

65

Andrea Macchiavelli, Lara Cinesi

Daily average per capita expenditure Holiday as a reason for the travel Travellers over 45 years old Average stay in Italy Travellers who choose a tourist package Overnight stays in hotel

GB € 110 71% 37% 4.2 ds. 9% 68%

D € 90 69% 23% 3.9 ds. 1% 63%

E € 42 45% 9% 7.1 ds 1% 39%

Table 1: Characteristics of passengers coming from the 3 main countries to Orio al Serio airport 2006 Source: Elaboration based on the survey on international tourism conducted by the Bank of Italy

The data show that the English traveller and the Spanish one have a very different profile. On average the first one is older, he comes to Italy mainly for leisure purposes and his average stay is very short. He stays overnight mainly in hotel and, as a consequence, he spends daily a high amount of money (higher than the average amount spent by English tourists in Italy!); few of them bought a tourist package (anyway their share is higher than other travellers). Conversely, the Spanish tourist is younger on average, leisure is not his main purpose (many of them come to study or to meet relatives and friends), he does not spend the night in a hotel and, as a consequence, spends a lower amount of money (about 1/3 as regards the English tourist!). The German tourist is placed between the English and the Spanish one, but his behaviour is more similar to that of the English tourist rather than the Spanish one. In this case we considered the country of origin, but several different behaviours could be analysed in relation to the purpose of the travel or to the age. All this leads to the conclusion that the demand for low-cost flights cannot be considered homogeneous, but is indeed characterized by significant differences. The English tourist uses a low-cost flight mainly to save on the ticket price, but he does not show a different behaviour in comparison of traditional tourist. In this case the polarisation of consumption – phenomenon pointed out by many sociologists would be emphasized: the consumer tends to save on some services, in order to be able to spend more for others. (Gaggi & Narduzzi 2006) The spending power of the Spanish tourist is different, and he probably would not have travelled if he had not had the opportunity to use a low-cost flight. He is a “new” tourist, led to travel by the low-cost of the ticket.

66

Low cost tourism and real estate demand

The lack of knowledge about the area where the airport is located is a characteristic of most travellers, when the destination is not already known by personal reasons. In a survey carried out on the passengers at the airport of Orio al Serio, a specific question on the knowledge of Bergamo4 as a tourist city was asked: only 40% of the sample gave a positive answer, 24% knew Bergamo only as an industrial centre, while 36% considered it within the peripheral area of Milan. It is therefore confirmed what was supposed by Sigala e Baum (2004): “low cost air travel contributed significantly to the casualisation of travel”.

2.2 European tourists, air travel and holiday home in Italy A holiday home in a tourist destination is popular in the Italian high and middle class. According to the Italian National Institute of Statistics (ISTAT) annual survey, the Italians who spend holiday in their own second home were 12,3%, while 33,4% found an accommodation at their relatives and friends (2007 data). It should be underlined however that many second home owners do not inhabit their tourist house during the holiday. The ownership of second home in Italy has always concerned almost exclusively Italian people; the property as holiday destination is typical of the domestic demand and it normally affects an area not too far from the main residence. The exception concerns emigrants, who usually belong to the older generations; in fact there are many people who use to spend holidays in their native country in order to meet relatives and friends, even though they have been living abroad for many years. This is particularly evident in the southern regions of the country, from which many people emigrated in the past (Sicilia, Abruzzo, Puglia and others.). Nevertheless, during the last decades, foreigners showed an interest in purchasing a holiday home in Italy. This trend has been noticed: a. in border regions, for tourists from the neighbouring countries. They are encouraged by the familiarity with the language, and, above all, by the closeness to the tourist destination, which allows a more frequent use of the house all year around (e.g. Piemonte and Liguria for the French or Lombardia for Swiss); b. In some regions with very important tourist attractions, (e.g. Tuscany, Umbria or the lakes in the north) even for the tourists coming from far countries (mainly Americans, English or Germans), who spend some periods of the years in these places, attracted by the interest of the place. Generally, this kind of demand is in terested in a particular type of dwelling, connected to the cultural identity of the destination. Recently, for instance, there has been a strong increase in the de mand for “Trulli” (typical house of Puglia) by foreign tourists.

___________________ 4

Bergamo is a city characterised by remarkable cultural and landscape resources, with about 120,000 inhabitants.

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Andrea Macchiavelli, Lara Cinesi

The survey on international tourism carried out by the Bank of Italy allows having some indication about the propensity of foreign tourists to use a property in Italy5. According to the survey results, the arrivals would amount to about 347 thousand, equivalent to 0.8% of foreign tourists arriving in Italy6. In order to analyse the phenomenon of foreign home owners and its connection with the development of lowcost flights, with the aim of purifying data from elements related to emigration, we choose to focus on a restricted sample of nine countries, eight European (Belgium, France, Germany, Netherlands, Great Britain, Spain, Sweden, and Switzerland) plus the United States. These are the countries that provide the most important tourist flows to Italy and, at the same time, where people show an interest in a second home. This share of foreign tourists coming from the main countries represents approximately 75% of total arrivals of the foreigners that own a house in Italy (about 333thousand) and 67% in term of nights (about 5,8 million). These tourists have the following features: – Most of them are in their working age or, at least, young retired people (40.6% are more than 45 years old, but only 8.2% over 65); – 67.7% of them come from just 3 countries: Great Britain (28.6%), Germany (26.6%) and United States of America (12.5%); – They have an average stay per trip of 14.3 days, which shows a propensity to stay not only as a tourist; – The daily average spending per capita is EUR 39.1: this highlights a behaviour without many transfers; – The distribution among the Italian regions is summarised as follows : Sicilia

15,6%

Puglia

5,9%

Lazio

12,9%

Sardegna

4,9%

Toscana

12,2%

Abruzzo

4,1%

Lombardia

10,4%

Marche

3,2%

Campania

7,5%

Others

16,4%

Veneto

6,9%

TOTAL

100,0%

Table 2: Air arrivals of foreigners who own a house in Italy .The percentage concerns the first 10 regions

___________________ 5

6

68

Data are referred exclusively to foreign tourists, coming to Italy by plane (so the movements on the border are excluded) and who spend a period in their property Since the sample used for this survey consists in 650 cases only, we preferred not to reduce it further (for instance, by considering only those who travel for leisure purposes), in order to hold its significance.

Low cost tourism and real estate demand

Even though these regions are the biggest ones, this classification is completely different from the one concerning the foreign tourist in Italy as a whole: in this case 5 regions of South of Italy are involved (in the total classification there is only 1 southern region!). This is a clear sign of the relation with the emigration. Figures concerning the relation between countries of origin and regions of destination help to explain the phenomenon, but since the sample is rather modest, we prefer to use them only as a general trend. On the basis of all the available information, we can recognize three kinds of tourists who are owners of a house in Italy, with the following characteristics: Tourist typology Return Tourists

Business travellers

Leisure travellers

Characteristics Emmigrants returning to their countries of origin. The most of them come from Germany, France and Switzerland and they are heading for the South of the country (mainly for Sicily). All those who are related to Italy for working or istitutional reasons. They come from different countries, but the Americans have a high share. They travel mainly to Lombardy and Latium (Rome) Tourists who bought a house for leisure purposes. The main flows come from Great Britain and United States and are heading for Tuscany, Latium (Rome) and Veneto (Venice)

In conclusion, the purchase of real estate for tourist use by the foreign people who do not live on the outskirts (and consequently air travellers) is behaviour that exists, but is also a behaviour which frequently hides different relations with the land.

3

The tourist real estate market in Italy

3.1 Features and trends Italy has a high density of residential building on a territory that cannot be completely used, because of the significant presence of mountains. In the areas suitable for construction there are industrial activities, residential areas as well as tourist resorts, all highly developed. Also for this reason real estate tends to be “tense”, and pushes towards high prices, which affect the other form of tourist accommodation (for example, hotels’ prices are generally higher than in other countries). In the housing market the phenomenon of holiday homes is, as already noted, widely spread. In 2004 second homes in Italy were estimated to be 3 million (Becheri et al. 2005; p. 41).

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Andrea Macchiavelli, Lara Cinesi

Houses used mainly for leisure purposes, are generally located in tourist regions not far from large urban areas (Macchiavelli 2007). The greatest concentrations are recorded in the mountain areas of Val d’Aosta, Piemont and Lombardy (nearby the urban areas of Turin and Milan) and in the coastal areas of Veneto, Tuscany and Latium (regions with a high urban density). However, only a minority of these houses are available for renting. Rental houses are usually owned by residents and were built with the specific purpose to be let, in order to generate an additional income for the owner. Conversely, for houses owned by non-residents, the willingness to let out is very low, differently from Britain, where about 20% of second homes’ owners, give their house for rent (Brackembury 2007), but similarly to what happens in Switzerland, where 97% of the holiday homes’ owners are “unwilling to rent their second home” (Bieger, Beritelli, & Weinert, R, 2007) During the last years the price of tourist houses has remained high (fig.1), despite an increase in the supply and a stability in the level of sales (Nomisma 2007). As a rule, in Italy there are two kinds of market: the first one is the market for luxury houses, characterised by an extremely inelastic demand, willing to pay even 3040% over the market price for a house in an exclusive resort. The second one is the middle market which continues to attract investors, even thought the prices are continuously increasing.

(+5.4% = Località Marine, +4.5% = Località Montane) Figure 1: Evolution of the change of prices related to the purchase of holiday homes in the main Italian tourist destinations

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Low cost tourism and real estate demand

The reasons that lead to the purchase of a holiday property are the same in all the high-income countries: the attractiveness of the resort, the availability of a “refuge” suitable for one’s personal needs, the prestige of owning and showing a property (Keller 2007). Nevertheless, with regard to the Italian situation, it is remarkable that the second home also represents an important form of family investment, especially in periods of great economic uncertainty or high inflation. This explains why many holiday houses remain totally vacant during the year or are used only during the very peak season, with the result of weakening the entire destination, because of a lack of tourist demand (Macchiavelli 2007). The phenomenon of “cold beds” characterises most of the countries with a high concentration of second homes, and it is so widespread that the Local Municipalities of some tourist destinations forced (through special agreements), the owners to rent their houses for some months in the year (Williams 2007). For what concerns foreign tourists, the factors that lead to the purchase of a second home are related to climate, landscape and cultural aspects. In Spain, a country with optimal climatic conditions, there has been a strong increase of the tourist real estate stock, in its different forms (apartments, residences, time sharing etc.). Presently foreigners account for 39% of second homes market of the country, and more than 60% of them come from Great Britain and Germany. However, even in the case of foreigners, the problem of “cold beds” is still relevant, since in Spain the average occupancy rate is only 17 days per year (Datzira 2007). In this context, the availability of low-cost flights can be very important, because they can encourage a greater use of second homes utilization, although it is evident that the main reason of this low occupancy rate should not be sough in economic factors.

4

Low-cost flights and their impact on tourism

4.1 Low-cost flights and tourism The relation between tourism and air transport is characterized by a mutual influence and it is too short sighted to suppose that air transport alone could determine the characteristics and the success of a particular tourist destination (Bieger & Wittmer 2006). Moreover, the impact on the tourism sector depends on the specific business model adopted by the airlines, which affects in different ways both the management strategies of the airlines themselves and the destinations served. (Bieger, Döring & Laesser 2002).

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In the last years, the low-cost flight model, based on point-to-point connections, contributed - more than other factors - to modify the tourism of some destinations and to create significant opportunities for development in these areas, not only in the tourist sector (Siciliano & Vismara 2007). For these reasons the partnership with low cost carriers has been the best strategy adopted by several tourist destinations to promote their development. With this aim they provided financial incentives to the low cost airlines, eluding several U.E. restrictions on these types of transactions. Of course in these areas, the low-cost transport becomes a powerful tool for territorial marketing. Low-cost air transport has however some peculiarities and its effects are not yet well known. The effects are probably not the same for all the destinations and depend to a great extend on the characteristics of the tourism developed in the territories served, by low cost carriers, on the characteristics of the countries from which the main flows are originated ( the behaviour of English and Spanish tourists in Bergamo, is not accidental, but reflects the history of outgoing tourism in these countries), and, finally, on some operational conditions of the airport (slot, frequencies, etc). The various effects of tourism on the territory imply different strategic approaches to the local tourist policy as well as a change in the previous promotional strategies. This is one of the main problems that have to be solved at local level. It is well known that, most of the low-cost carriers are based in secondary airports, often located in non-tourist areas, however, with a lack of organization capability. Policy makers in the tourist destination are often disoriented and do not realize the significance of this phenomenon; consequently they have some difficulties in implementing some appropriate policies and in giving up the previous one. On the basis of the knowledge acquired with several analysis – particularly at the Bergamo airport – we can highlight the following aspects of the relation between low cost flights and tourism: 1. The development of low-cost carriers caused an evident increase in the number of air passengers in Italy. In 2005, year without a growth in total tourist arrivals, CISET estimated that the total number of passengers increase by 9%, hauled by an increase of 19% in the number of low-cost passengers (Minghetti 2006). The Orio al Serio airport, served mainly by low-cost carriers, at the end of 2007 reached 5,8 million passengers, with connections to 75 destination (in 2001 there were only 14); Pisa airport, another low-cost related airport, reached 3,2 million passengers, with 48 destinations

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Low cost tourism and real estate demand

2. At the beginning, passengers are not aware of the characteristics of the place where they have landed, and sometimes they expect to arrive in a totally different site. It is well known that the word-of-mouth advertising is the most effective way to promote a destination and it is exactly what happened in the case of Bergamo; the airport has seen a significant increase in the tourist flows, thanks to the promotion carried out by the tourists themselves. Generally, this little knowledge of the destination by the tourists can have some positive implication for the local tourism system, since tourists have fewer expectations and can be better oriented on the territory. But this also requires more initiatives, and specific promotions targeted to the countries of origin of the tourists. 3. Tourists often use a low-cost flight for a short holiday; for this reason they have short time available and are willing to be oriented. This means that the organizing capability of the local tourism system can become a crucial variable for the success of a tourist destination, in comparison with other competitors. An area served by low-cost carriers needs an efficient organisation, so as to reduce the waiting periods and offer an integrated tourist product to the traveller. Destination Management is therefore essential. 4. Low-cost tourists obtain information and manage their trip, using the Internet. Among the foreign passengers arriving in Bergamo, only 4% bought a tourist package. This means that the tourist supply can reach the travellers mainly by three channels: the Internet, the flight (and therefore the airline with its communication channels), and the airports (departure and arrivals). This condition requires a revision of the policies and especially of marketing and promotion strategies; investments in fairs and intermediation services become less important that the ones for on line advertising and airports. 5. As Valls already pointed out, it is surely true that the use of low-cost flights ”increase the power of consumers in the make-up the tourist prices” and that the low fare of the flight tends to contaminate other tourist sub sectors (Valls 2005). In Bergamo, for example, low-cost tourism lead to the development of new forms of accommodation, with more accessible prices for leisure tourists (Bergamo was mainly a business tourism destination); from 2002 to 2007 the number of Bed & Breakfast rose from 18 to112 and new 3-star hotels were opened. In any case, the tourist market is rather segmented (see point 2.1 above), and the approach to this form of tourism should consider all the different segments.

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4.2 Low-cost flights and the purchase of holiday houses It is well known and widely reported that the presence of a low cost airport can encourage the purchase of leisure properties. Bieger & Wittmer (2006) identify in the low-cost business model, a preferential relation with the tourist areas are affected by a great concentration of second homes, stressing that “destinations with a large number of decentralised managed second homes, and thus a need of flexible traffic connections, provide a good market for LLCs”( pag.9). With the aim of quantify the relation between some Italian airports and the presence of second homes used for holiday, we decided, in the lack of statistical data that allow to link the two phenomena, to conduct a direct survey on a sample of real estate agencies. The method adopted was the following: a) We selected only destinations with the following features: – presence of an airport served by a significant numbers of low-cost flights (with more than 200.000 low-cost passengers per year) – presence of tourist attractiveness in the area; The main airports of Milan and Rome were excluded from the analysis, due to the problems in discriminating the second homes from other types of accommodation. A total of 22 areas were considered. b) A short questionnaire with six questions was prepared, in order to detect: – the presence of demand for holiday property in the area expressed by for eign customers; – the activity of real estate agencies with foreign customers; – the incidence of low-cost flights on the purchase of holiday houses by foreign customers; Further information about the size of the real estate agency in terms of offices, employees and salesmen was also asked, in order to weight the collected data according the size of each agency. c) Questionnaires were sent via e-mail to more than 600 real estate agencies. After a number of reminders, 120 useful questionnaires were collected. The size of the sample suggested to avoid any territorial analysis and to process the data as a whole. d) Most of the respondent agencies were small-sized (as it is typical in every region of Italy): each agency has an average of 1.2 offices and 4.2 person employed (employees and collaborators).

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Low cost tourism and real estate demand

The most significant findings of this research can be summarised as follows: – Almost 75% of the surveyed agencies believes that in their operating area there is an actual relation between the purchase of second homes by foreigners and the availability of low-cost flights at their airport of reference; – 55,8% of the agencies declare to have foreigner customers. On the a whole, foreign customers are estimated account for 20% of total customers; – 46,8 % of the agencies believe that there is a relation between its own foreign clients and low-cost flights. This means that over 83% of the agencies with foreign customers believe that the foreign customers are related with low-cost flights; – The incidence of this relation as is shown in Figure 2. More than 15% of real estate agencies consider that the “dependency” of the foreign market d on low cost flights is greater than 50%. It should be underlined that such a strong relation has been recorded in the areas of Sassari/ Alghero (tourist area of Sardinia), Pisa, Ancona (on the Adriatic coast), Brescia (Garda Lake) and Perugia.

9.2%

6.7%

5.8%

53.3%

14.2% 10.8%

none

80%

Figure 2: Purchases of second homes by foreigners, according to real estates agents: dependence on low cost flights

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Andrea Macchiavelli, Lara Cinesi

On the basis of the statements of the agencies, the foreign buyers come from the following countries7: Countries of origin

%

Great Britain

43,7

Germany France Russia

Countries of origin

%

USA

4,7

19,3

Netherlands

3,8

8,1

Switzerland

2,6

6,9

Others

10,9

Essentially the survey results showed that in Italy the relation between the availability of low-cost flights and the purchase of leisure estate properties by foreigners actually exists and concerns mainly English tourists. This could be due to a higher purchase power compared with other European countries. All the tourist areas are, in different ways, affected by this phenomenon, which is however particularly significant in Tuscany, Sardinia, and on the Tyrrhenian and Adriatic coast. The dialogue with the real estate agencies has also shown that in some areas (mostly in Tuscany) there is a notable demand for luxury residence. Russians tourists represent the emerging market in this particular sector and their presence is noticed in several regions.

5 Conclusions and directions for further research With the contribution of different sources, the analysis revealed the existence of a relation between the development of low-cost flights and the increase in the number of second homes owned by foreigners. This phenomenon is certainly perceived by real estate agents and, in some areas, it appears to be significant. On the basis of the information collected it can be concluded that: a. This phenomenon contributes to keep the prices of leisure estate properties high (if not increase them). b. Since this is an incremental demand, it is realistic to expect that it will stimulate Local Municipalities (always in need of tax revenue) to promote the construction of new tourist buildings. c. In those areas where the interest of foreign tourists in real estate properties is booming (e.g. Alghero-Sassari), the tourist demand is changing. d. The low utilisation of the holiday house owned by foreigners, will contribute to the phenomenon of “cold beds”, with its negative impact on the tourist destination.

___________________ 7

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The reported data are weight on agencies’ size

Low cost tourism and real estate demand

The situation is also strongly influenced by the development of air transport and its costs. The sharp increase in the cost of fuel together with a possible taxation on air transport, (aimed at reducing the negative effects on the environment) could lead to an increase in the fare and thus to a reduction in the use of aircraft for unnecessary purposes. Since this is a topic still not deeply investigated, there could be many further directions for research. In our opinion the most important subjects are: – The quantification of the phenomenon, by better isolating the leisure component. If the analysis at national level should not be possible, it would be interesting to analyse the situation at local level, with some case studies; – An analysis of the second home owner’s behaviour, with particular reference particularly to the use of holiday house and of the aircraft.

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Bibliography Baccelli, O., Senn., L. (2004), Il trasporto aereo in Italia. Le imprese e le politiche, Egea, Milano Becheri, E., Gambassi., R., Billi., S., et al. (2005), Il turismo italiano negli appartamenti. Primo rapporto 2005, Mercury s.r.l., Firenze. Bieger, T, Döring, T & Lasser C. (2002),Transformation of business models in the airline industry – Impact on tourism. In: Keller, P., Bieger, T. (eds), Air Transport and Tourism, AIEST 52th Congress. Vol.44: 49–83. Bieger, T., Beritelli, P., Weinert, R. (2007), Understanding second home owner who do not rent-Insights on the proprietors of self-catering accommodation. In: International Journal of Hospitality Management. Vol. 26. Bieger., T. Wittmer, A. (2006), Air transport and tourism – perspectives and challenges for destinations, airlines and governments. In: Journal of Air Transport Management, 12: 40–46. Brackembury, M., Les grands marchés émetteurs du tourisme résidentiel: quels sont les futures tendances ?. In : 9th Sommet’s du Tourisme, Chamonix 12-14 dec.2007, slides. Datzira, M.J, Pourquoi l’Espagne est-elle devenue un pays de résidences secondaires? In: 9th Sommet’s du Tourisme, Chamonix 12–14 dec. 2007, slides. Gaggi, M., Narduzzi, E. (2006), La fine del ceto medio e la nascita della società low cost, Einaudi, Torino. ISTAT (2008), Viaggi e Vacanze in Italia e all’estero nel 2007, Roma. Keller., P. (2007), Property: from boom to unbalance in tourist location? Introduction to 9th Sommet’s du Tourisme, Chamonix 12-14 dec.2007, working paper. Macchiavelli, A., Colombo E. (2007), Effective occupancy of the holiday houses: condition for the development of the destination. In: Keller, P., Bieger, T., Productivity in Tourism, Erich Schmidt Verlag, Berlin:123–133. Macchiavelli, A. (2008), Passeggeri low cost visti di profilo. In: La Rivista del Turismo, n. 1: 12–19. Mazzà R. (2008), Il sorpasso in tre anni? In. SL&A, Le microvanze. Cronache dal futuro prossimo, Roma. Minghetti, V. (2006), I turisti no frills-low fare : caratteristiche e comportamento di spesa. In: VII Conference CISET-UIC “L’Italia e il turismo internazionale”, Venezia, slides. Nomisma (2007), III° Rapporto sul Mercato Immobiliare Turistico, F.I.M.A.A., Roma. Siciliano, G., Vismara, M. (2007), Low Cost, High Value. In: La Rivista del Turismo, n. 4: 24–32. Sigala, M., Baum, T. (2004), Low cost airlines and their impact on travel behaviour, Working paper, Conference “ Tourism: State of the Art II” Glasgow, 27–30 June 2004. UIC (2007), Indagine sul turismo internazionale 2006, Roma. Valls, J. F. (2005), Impact of low cost on spanish hotel prices, Working paper, ESADE, 14th International Tourism and Leisure Symposium, Barcelona. Williams, P. (2007), L’immobilier de loisir : comment le problème de la sous-utilisation de l’hébergement touristique est-il abordè en Amerique du Nord. L’exemple de Whistler Mountain. In: 9th Sommet’s du Tourisme, Chamonix 12–14 dec. 2007, slides.

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Dynamics of price negotiation in real estate at upscale resorts in the Alps – A case study of Verbier, Valais, Switzerland

Miriam Scaglione

Abstract The evolution of real estate pricing in upscale destinations in the Alps can be studied from different points of view. It can be seen, for example, in terms of supply. This usually gives, as the main reasons for the determination of price, the scarcity of suitable building land, the beauty of the landscape and proximity to winter sports installations, besides other externalities like urban planning and, specifically in the case of Switzerland, the legislation referred to as the Lex Koller. Alternatively, it can be seen in terms of demand: motivation for investment in real estate could be attributed to a slower increase in the cost of property, or to the increasing economic risks in financial markets, or simply to the pressure of inflation. Nevertheless, neither point of view, taken separately, explains one very important aspect: the dynamics of the interaction of the actors in the market. The study of different market segments and the interaction between them does, however, shed light on the dynamics of the formation of property prices. The aim of the present research project is to take this latter approach. Firstly, the paper describes the dynamics of pricing negotiation in real estate in Switzerland, as presented in (Favarger & Thalmann, 2006). Secondly, it characterizes three different market segments, or archetypes, interacting in such a market. On this basis, the research suggests certain hypotheses about the particular features of the interaction of these three segments. Thirdly, it tests the former hypothesis in the case study of Verbier. Finally, the conclusion shows that the interaction of these three segments of the market affects the formation of prices and, as a result, could be at the origin of a price bubble. Whether the bubble is speculative or rational remains a more open question. Keywords: Real estate market, price bubble, fundamental value vs fair market value, rational price bubble, cobweb phenomenon

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1 The price negotiation mechanism in real estate property Real estate has particular features which differentiate it from other markets. Favarger & Thalmann (2006, p. 1) list the characteristics of the components of the supply, namely properties, and the main factors in the market (table 1). The issue of pricing in real estate markets deserves particular attention because there are several concepts of price. The first is the fair market value, i.e. the value for which a property could be sold in the market, which is difficult to establish. The fair market value is hard to evaluate because, in most cases, the transaction is still virtual and the agreed price is not yet known (cf. op. cit., p. 2). Experts in real estate, therefore, have to use different methods, which give different kinds of prices. Such methods can be divided into two main groups, depending on the estimated value of the target: the return value, or equity value, and the intrinsic value. Characteristics of

Factors in price determination

properties









Has sub-markets Difficult comparisons Properties are all different No possibility of spatial balance Localized markets Constraints owing to urban planning Scarcity of available plots of land It is difficult for supply to meet an increase in demand

Expensive






Significant maintenance costs It is very difficult (almost impossible) to adjust to lower supply Loan finance (importance role of international funding)

Obligatory factors




Demand relatively insensitive to pricing; high variability of prices (in the case of primary lodging).

Heterogeneity

Immobility Intensive use of land Lengthy production time Heavy duty

Table 1: Characteristics of properties and their incidence on price determination (adaptation of the table (op. cit., p. 1), with the authorization of the authors)

Methods targeting equity value aim to estimate the return on the capital invested in real estate, whereas intrinsic value methods aim to estimate the price of a reproduction of the same object after subtracting the effect of its age and corresponding depreciation. Moreover, at least another three methods or values are available to the expert for the same property: the insurance value, the fiscal value and the pledge value. As Favarger & Thalmann (2006, p. 3) point out, it is the analysis of the market and the behaviour or interaction between the seller and the buyer that determines the choice of the method of estimation: “If the actors in the market buy at the lowest price or sell at the highest price possible, two identical properties ought to change hands at the same price […] but no two properties are ever identical”.

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Dynamics of price negotiation in real estate at upscale resorts in the Alps

This is one characteristic that makes the estimation and the negotiation process so particular. Whatever method of estimation is chosen, the process is carried out under the hypotheses, or trade-offs (box 1), which describe a set of rational features of the market (op. cit., p. 121). Favarger & Thalmann raise the point of alternatives available to the buyer/seller to buying/selling the property, or even to the whole deal. This is also a universal characteristic of all methods of estimation; their goal is to compare the alternatives. In an ordinary real estate market, the buyer has more than one object in which he is interested. Also, he has the option of not making any purchase at all, if there is another asset that could yield a better profit than the investment in property, or at least give the same return with the same level of risk. The analysis of all the alternatives gives a “maximum price” the buyer will offer for the transaction. The same occurs in the case of the seller, who is willing to hand over the property on condition of getting a fair price (op. cit, p. 5). The seller also has alternatives to selling; for instance, he can let the property. The analysis of all the alternatives gives a “minimum price” for the seller for the transaction. – – –

– – –

There are enough potential buyers. The actors are fully aware of the state and the conditions of the market. The buyer is not compelled to sell and the buyer is not compelled to buy. This condition is not always observed, especially on the side of the seller. A buyer is seldom compelled to buy a specific object, but may often be compelled to obtain a property. A reasonable time in which to conclude the transaction, usually some months, is available. Actors act prudently. The buyer has no particular interest in the object, like i.e. buying his childhood home.

Box 1: Elements of the trade-off hypothesis

All these elements lead to a process of negotiation. Figure 1 gives the contrasting utility lines for buyer and seller, and helps to illustrate the process of price negotiation. The diagram also helps to define the three categories of buyer.

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Figure 1: Contrasting buyers’ and sellers’ utility lines Adapted from Favarger & Thalmann (2006, p. 8)

Favarger & Thalmann (2006, p. 3) describe the deal mechanism as follows. The process begins once the seller decides to put the property up for sale, when a price is asked for the property. The estimate is usually made by an expert. The expert estimates the fair market value, which at that particular moment is no more than a probable price. The seller then publishes a requested price, which is normally higher than the probable one given by the expert. This requested price is the monetary compensation demanded in exchange of the property. Nevertheless, the requested price can be different from the one that it is finally paid. If more than one buyer accepts the requested price, the interested buyers will probably make a higher bid. If, on the contrary, no buyer appears, then the seller has to review the requested price downwards. In both cases, buyers show the price that they are willing to pay for the object of the deal (in figure 1, the “proposed price”). At that very moment when at least one buyer appears, the deal process begins and the two prices, namely the one requested and the one proposed, could vary between ranges of values. Figure 1 show the upper limit for the buyer as the “maximum accepted price”, which comes from the analysis of the alternatives. The same happens to the seller, who has a “minimum accepted price”. The difference between the prices represents the real margin of negotiation. Nevertheless, the socalled acceptable price is sometimes far from being constructed on an objective basis: “Acceptable prices depend on the motivations of the buyers and the alternatives available to them. The latter will vary in the case of the buyer and the seller, an investor or a user…” (op. cit, p. 9)

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Dynamics of price negotiation in real estate at upscale resorts in the Alps

The present research adds to the representation in figure 1 given by the authors quoted by calculating the theoretical deal margins in dotted lines. The buyer has a range limited by the “maximum accepted price” which corresponds, in a rational market, to the evaluation of the alternatives, but in theory the limit can be extended to include all his or her assets, plus the loans obtainable. The upper limit will in any case be limited, whatever the circumstances. At the bottom of the scale, the buyer may decide not make any deal at all, so the degree of usefulness will be zero. However, the case in which the buyer is looking for a first, primary home excludes the possibility of not making any deal at all, i.e. a newly married couple must use their assets, if not to buy then at least to rent accommodation in which to live. In this specific case, the cost of there being no deal at all is too high and the minimum level is no longer zero, but must be higher, because the status quo is not a solution. The seller’s margin has, in theory, no upper limit, since the upper limit is fixed by the market at the level of the transactions or processes into which he has to enter in order to sell the property. The lower limit in figure 1 is zero, which represents the degree of usefulness of not making any deal at all. Nevertheless, under certain special situations, such as a compelling need for cash, the lower limit could result in an application for a loan, although the status quo is not a solution. The following section describes three different segments of the market on the basis of the motivations that can drive demand.

2 Segments of real estate market in an upscale Alpine resort This section proposes a segmentation of the demand market interested in individual homes or apartments, to be acquired for personal use, at least for a short period of the year. The properties for commercial use such as malls, restaurants, hotels, etc are not included in this description of the market. Also, this segmentation excludes people living permanently in the resort and looking for another property for investment purposes, e.g. in order to rent it out to visitors for shorter or longer periods. Similarly, the analysis excludes professional investors. These exclusions, though representing a limitation, are necessary in order to produce a group which is as homogeneous as possible in terms of the evaluation of their alternatives. Table 2 describes those segments. The segment of people looking for a primary home must gather or mobilize capital in order to satisfy that need. In contrast, the other two segments could leave their assets in a different form of investment (e.g. bonds or shares) if the evaluation of the alternatives shows that this would yield a higher return.

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The alternative solutions for the first group, besides buying another property, are to rent one in the resort or to live in a town nearby. Besides certain gratifying aspects like living close to family and relatives, travelling time is an issue in Switzerland. The results of a survey of over 2,000 questionnaires carried out in 1996 in a Swiss National Research Fund project entitled “Rental and ownership, as determinants of the status of the occupation of the household” are published in Thalmann & Favarger (2002) and show that only 14.3% of respondents travel more than 30 minutes. Nevertheless, when respondents are asked about the main factors determining the choice of property they will buy, the duration of the trip to work is not placed at the top of the list. Swiss people seem to give more importance to the characteristics of the natural environment (its relative quietness, the sunshine, the view) than to their commuting time, and even less importance to cultural factors (theatre, cinemas) (op. cit., 2002, p. 24). These most important characteristics are always present in upscale resorts in the mountains. 1. Primary home

2. Local

3. Not local

People looking for second home, either to keep the property without renting it, or agreeing to rent it for certain periods, depending on the evaluation of their own equity value. The property market

Looking to settle

where they have

permanently in the

their primary house

destination - because Characteristics

the resort is the town

“Local” means that its

to which they are

members operate in a

attached or are moving

similar economic

there for professional

environment to those

reasons.

actually living in the resort.

is very different in terms of comparative value of property. Also, they have a transport option that is considered acceptable from the point of view of its price, i.e. low-cost airlines.

Degree of commitment

84

Almost compelled

Not compelled

Dynamics of price negotiation in real estate at upscale resorts in the Alps

1. Primary home Socio- professional category

Any kind

2. Local Wealthy Family living within a

A recently married couple looking for an apartment, or a Archetype

radius of less than 200 km, or less than 2 hours by car, from the resort looking for a property in

growing family looking for a larger house because they are short of space in their present home.

order to spend holidays/weekends there. They might agree to let the property, for rental, for short periods of the year.

Possible naïve evaluations

3. Not local From wealthy to very wealthy An English family living in London who is looking for a property in which to spend winter (and summer) holidays, as well as other short periods, like long weekends, at the resort.

Underestimate of the costs to be faced (loans,

Comparison with a

indirect costs owing to the transaction, operating

similar object in the

expenses, possibly construction costs if building a

town/country where

new property)

they have their Comparison with a

primary home, or

similar object in the

with some other

town where they have

resort in their own

their primary home.

country of residence Probably will not accept another

Other properties

property (owing to “le coup de coeur”

Alternatives

i.e. impulse buying) Renting a primary

Use tourism accommodation (hotel, self-

home or buying in a

catering unit) during long/short periods and

nearby town

keeping the capital in the financial circuit.

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Miriam Scaglione

Awareness of conditions of

High

the local market

High-to-medium

Medium-to-low

Economic: the trade-off between the times spent at the resort and the cost of traditional Economic: reducing

tourist accommodation.

the cost of travelling to

Investment for

work every day.

retirement: second home will become primary

Motivation

Low cost of air fare

one. Hedonistic: so as to be close to family and relatives. Go on living in their present location.

Hedonistic: the freedom of choosing any moment to come. The beauty of the landscape and quality of services in the destination (skilifts, restaurants, etc.).The satisfaction of owning a house in an upscale resort from the point of view of social standing.

Table 2: Characterization of the segments interested in the purchase of a property for personal use in an upscale Alpine resort

Only 31% of Swiss people own the home where they live. Apart from the Baltic countries, where the percentage of homeowners is even lower, Switzerland has the lowest share in Europe. The canton of Valais is an exception, because the proportion of those who own their own primary residence there is 61%. As to the question of why they have given up the chance of owning their own home, the two main reasons given are: not enough equity funds, and financial costs which are too high to be affordable (op. cit., 2002, p. 47). The second segment is local people looking for a second home. As Thalman & Favarger (2002, pp. 228–229) observe “…the low proportion of households who own their homes does not necessarily mean that so few renters of their main homes own no property. We have seen how 10% of renting households own second homes or other houses which are let to third parties”. They observe (p. 193) that the proportion of tenants who own second homes in Switzerland is 7%. These tenants are mostly wealthy retirees; two-thirds are Swiss owing second homes in Switzerland, and one-third is foreign nationals whose secondary residence is abroad. The Credit Suisse bank (2004) describes the life cycle of a secondary home as being in four phases. The first phase is the investment phase, which refers either to the purchase of the property or to building a new house; this phase coincides more or less with the life cycle of the owners themselves.

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The second phase represents the moment where the property becomes a second home, with intensive use as lodging or/and for renting it out to visitors. The third phase marks reduced use by the owner, although it could also be put on the longerterm rental market. The fourth and last phase could be either when the second home become the main one or when the property is sold and becomes once again a second home, which launches a new cycle. Some empirical events support the hypothesis that the second home becomes the main one when the owners reach retirement age, at least in the Valais, where there are an increasing number of cohorts of those over the age of 45 in comparison with Switzerland as a whole. The Bas-Valais seems very appealing for retirees, for various reasons: exoneration of death tax and the tax on donations to descendents, the spouse and parents, the lower cost of health insurance than in other cantons, etc (Credit Suisse, 2004, pp. 18–19). Another reason is that the good air of the Alps is beneficial for some retirees with chronic illnesses such as rheumatism, arthritis, etc (Matos, 2005). Therefore, within the segment there are least two different modes of economic evaluation, depending on the time-scale of the return on investment (ROI): medium and long, if the second home should be considered as a serious alternative for retirement. The third segment that of not local people looking for a secondary home is – according to this hypothesis – composed of people who do not live in Switzerland. In almost all aspects, they are closer in terms of motivation to the second segment, as shown in table 2. Nevertheless, the main difference is that their everyday economic and financial circumstances are not the same as those of the former: firstly, owing to their home currency, and therefore to the difference in their purchasing a property of similar standard; secondly, owing to the difference in the culture and experience of the real estate market in their home countries; thirdly, their knowledge or awareness of the property market in the resort might not be as accurate as in the case of the local population. The premises in their case are also different from those of the two other groups, as is the evaluation of alternatives. As a result, this segment is more willing to accept a higher price than the two other segments. Finally, a most important factor is increasingly easy travel, thanks to low-cost flights, between their countries and Switzerland. Some authors, such as Vogel (2001, p. 51), underline the importance of air fare pricing on tourism demand. This market segment is more likely than the two others to buy a property on impulse, and to perceive it rather as a trophy. Bieger, Beritelli, Weinert & Wittmer (2005) propose a scientific framework for ownership behaviour in secondary homes.

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They support the idea that there are material goods which convey individual identity symbols inter (for others) and inner (for oneself). These authors underline the symbolic nature of a secondary home for its owner. Nevertheless, whether a secondary home could be considered as a trophy within the general Swiss outlook on life remains an open question. 2.1 The role of segments in price determination How do these three segments interact in a real estate negotiation? The trade-off hypothesis outlined in box 1 is the key to answering the question. Only two out of the six statements seem to hold good in this kind of market. These two statements are the followings: the buyer is not compelled to buy a specific object, and there are enough potential buyers for a property. The fact that the actors are totally aware of the state and condition of the market deserves deeper analysis. Rational expectations about the present and future return on investment in the market depend on the information available to the actors. In table 2, all the segments do not have the same level and the same quality of information about the market; moreover, the two segments looking for a secondary home could have either naïve expectations or different perspectives regarding their respective rates of ROI, i.e. when buying a house for retirement. When actors overestimate such returns in a rational or irrational way, a gap is created between the fair price and the price based on market fundamentals. At that moment, the market could be either characterized by a bubble, or could simply be experiencing an adjustment (Nerlove, 1958) based on cycles typical of RE (i.e. Kuznet cycles). The segment of potential buyers looking for a primary home has a threshold of expectations that is lowest, mostly based on the evolution of the price of renting. For the other two segments, hedonistic motivations and naïve anticipations could place the threshold higher than in the case of the first group, so they could accept a higher price. Whether there is a bubble or not depends on each individual case, but the conditions for the creation or the spread of a bubble are present in this kind of situation. The fact that there is a reasonable timeframe for concluding the transaction, usually of some months, deserves comment, especially regarding the Valais. In Switzerland, the Lex Koller, which aims are to limit the access of foreigners to property, is an important externality in the Swiss market for second homes. The Federal Government assigns a quota of objects (properties) which can be sold to foreign nationals, which is distributed by towns. In December 2006, the cantonal government of the Valais decided to apply a moratorium and for 2007 banned sales to foreigners in seven towns of the canton.

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At that moments (Sept 2006), there were some 1,000 notarial sale deeds pending, which represented a time-frame of 3-6 years to be consolidated (Fragnière, 2006). The fact that the actors act prudently seems to be contradicted, at least, by no local segment when one considers the long delay in consolidating the transaction. Finally, the fact that the buyer has no particular interest in a particular object could be violated, especially (but not exclusively) by the not-local segment of the demand. Favarger & Thalmann (2006, p. 22) point out that this kind of buyer does not a priori consider the property as an investment, but rather as one object in a larger collection. A foreign buyer of this kind will not take travel costs and the possibilities of alternative accommodation into consideration, but instead will compare the property with other objects which are not necessarily property at all. He will assign it a collection value, without this necessarily having any close link with its objective market value. In conclusion, in this market some elements of the trade-off hypothesis are contradicted by the presence of these three different segments. As a result, the estimation of real estate prices is affected upwards.

3 Analysis of property prices in Verbier Verbier is a well-known resort in the Bas-Valais, in the Val de Bagnes, near the Grand Saint Bernard pass on the route linking Switzerland and Italy. Within Switzerland, a population pool of 2.5 million people can reach Verbier by car in 2 hours, and 6 million people within 3 hours (Credit Suisse, 2004, p. 14). From Geneva International Airport the distance is 160 km by the A1 and A9 motorways, which takes 1 hour 40 minutes. Only 1.9% of the area of the Val de Bagnes (282.2 sqkm) is populated or used for infrastructure (Office fédéral de la statistique, 2001, pp. data 1997-1998). The first language spoken is French (87.2%), followed by Portuguese (3.76%) and English (2.72%). The skiing area in Verbier is one of the most extensive in Europe, stretching over four valleys, between the Mont Fort, the highest point above the village, and La Tzoumaz/Savoleyres, with a vertical spread of 1’500-3’330m above sea level. From the point of view of the hospitality sector, specifically for Verbier, the selfcatering sector accounts for some 90% of overnights. The capacity of all the hotels in the resort is no more than 1’000 beds. Verbier was one of the first destinations to offer chalet for rental combined with hotel services.

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3.1 Price bubble: to be or not to be? There is general consensus in the literature about the definition of a price bubble. This is present in the market when there is a gap, or difference, between the price of an object and its fundamental value. Several authors have worked in developing methods for detecting a market bubble in property, although less has been done than in other kinds of markets, e.g. in stock options. For Blanchard & Watson (1984), the presence of any gap does not, in itself, necessarily mean that a price bubble exists; it could be merely what these authors call “rational bubbles”. They claim (p. 84) that there is more than one perception of such phenomena, as with any set of information. Therefore, perceptions of a bubble can be different, as will the price the buyers are willing to pay. In the same line of thinking, Didier Cornuel (1999, p. 9) observes that “The bubble is rational insofar as the fundamental value is determined by a rational anticipation of future revenues”, but he denies that this is due to a different quality or a different amount of information. For Cornuel, a bubble is just an endogenous phenomenon of the market, and is not only unpredictable but also inescapable. Also, he considers that the fundamental value can be based either on rental income or on different macroeconomic variables, i.e. the labour market, the population, interest rates, etc. In the same perspective as Blanchard & Watson, Marc Nerlove (1958) had previously proposed - although not for the real estate market - that anticipatory market adjustments are not necessarily a bubble, on the basis of the cobweb theory, which represent the price/quantity dynamic (Ezekiel, 1938). A bubble could be merely the movement necessary for a return to equilibrium or, in other words, just a natural cycle. In order to study the evidence for the existence of a price bubble, the present research project used the cobweb method, namely the analysis of cycles based on the price/quantity dynamic. The data derives from the Guinnard estate agency, which until 2000 accounted for at least 80% of transactions, with a slight fall in its market share after that date (Guinnard, 2007). Figure 2 shows the cobweb charts for housing and the price of the sqm, adjusted by the yearly Swiss Consumer Price Index (SCIP), base 1982, for new and renovated properties. In the case of new objects, there are three cycles. For new objects, the first cycle begins in 1982 and runs until 1988. The price at the end of the cycle (1988) is higher than at the beginning (1982), suggesting that the cycle does not return exactly to the point of equilibrium.

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In 1988, Swiss property was affected by a federal law against speculation; it is difficult to evaluate the effect of such an externality. The second cycle runs from 1988 to 1995, and the level of prices in 1988 (4’404 CHF) is the same as in 1995 (4’581 CHF). The market seems to find its natural state of equilibrium. During the two first cycles, the number of objects for sale is always greater than 100. The next cycle, 1995-2007, shows a different pattern: after a steady price level from 1996 to 2000, during which the increase was only of 5%, there is both an increase in price (with the exception of the period 2002-2003, probably owing to the 9/11 effect) and a fall in the number of objects placed on the market. The question is whether this could be considered as a price bubble.

(a)

(b) Figure 2: Cobweb charts. Numbers of properties offered vs price of sqm, adjusted by the Swiss Consumer Price Index (SCIP) (base=1982) (Office fédéral de la statistique, 2007). Panel (a) new properties, panel (b) renovated properties. The different lines linking the chronology of the observation show 3 different cycles.

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Panel (b) of figure 2 shows a decline in the price of renovated properties in 2007; whether this is a consequence of the sub prime crisis is an open question. The main hypothesis about the 2000–2007 cycle is the existence of exogenous influences, such as the increasing interest of the UK market in Verbier as a resort. The role of a foreign demand segment has at least been acknowledged as a factor in the speculative bubbles affecting commercial real estate. The deregulation of the commercial real estate market and globalization of financial markets contributed to the international bubble in the second half of the 1980s in the UK and France, especially owing to Japanese investments (cf. Nappi-Choulet, 1999, p. 327). This research supports the idea that a similar situation could have affected prices in Verbier but rather than being due to speculative investors, the main reason could be the hedonistic motivation underlying wealthy foreign demand. A number of facts support this hypothesis. Firstly, the share of UK inhabitants on the demand side has increased during these periods. Buyers from the UK are the first in terms of market share, and from 2003 to 2006 always accounted for over 40%, followed by Swiss buyers, whose lowest level was 19% in 2005 and whose highest was 32.2% in 2003. In any case, the Swiss share is always lower than that of UK clients (Guinnard Real Estate & Tourism, 2007). Secondly, the increasing number of low-cost flights, especially by Easyjet, is an important fact for this segment, as has already been seen in the description of segments. An analysis of the evolution of UK passengers in commercial flights to Geneva (Aéroport International de Genève, 2007); not only shows that the number of passengers increases but also their winter seasonality becomes increasingly marked (from 150,000 in 1999 to 350,000 in the highest month of the winter season 2007). Finally, to test whether the increasing wealth in the UK is linked to the evolution of property prices in Verbier, a causal time series model was built having as endogenous variable the price of new objects in Verbier per sqm adjusted SCIP in log, and as explanatory variables the supply (the number of objects available for sale) in actual value, and the equity market capitalisation of UK companies on the London stock exchange market in log (London Stock Exchange, 2007). The model shows that there is not only a link between the evolution of property prices in Verbier and the capitalisation of UK companies on the London stock exchange, but, in addition, the influence of the latter on the former variable increases after 2000. (The details of that model and also the details about the evolution of UK passengers in AIG are available in a longer version of this research on request to the author).

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The quality of the objects on the market has also changed since 2000, at least in terms of the surface area of the units being offered for sale. Even if it cannot be directly linked with the UK customer, this shift shows, besides the increasing price of the sqm, an increase in the purchasing power of the demand. From 1982 to 2000 the average surface area was always below 100 sqm, with an increase over that period of only 14%, but during the last 6 years the increase has been 87%. In conclusion, there is indeed some evidence to link the increase in prices and a shift in the quality of the properties to the “not-local customer” segment, specifically owing to persons coming from the UK who are not so much speculative investors as wealthy foreign nationals looking to enjoy the tourism attractions of this upscale resort with their families.

4 Conclusion The increasing presence of foreign customers in the real estate market in Verbier and the increase in prices do seem to be linked, without it being possible to claim there is a causal relationship, but at least through their taking place in parallel. The “not-local customer” segment has always been traditional in the clientele of Verbier. Better connections by air, both in frequency and (especially) at lower cost, to Geneva encourage them to become owners in a destination which they have always found popular. The research shows some evidence that their presence in that market has driven real estate prices up, so creating a bubble (whether rationally or not). On one hand, local people wishing to purchase a primary home find it more and more difficult to find one in the resort, given not only that prices are rising but also that the quality of the accommodation on the market is increasing, which further restricts the alternatives available. Another important factor is the high differential level in parity purchasing power at the regional and the international levels for this segment, in comparison with the two others. Moreover, the local people segment is obliged to move assets in order to find a primary house (table 2) and is the one with the narrower margin for negotiation (fig. 1). In contrast, wealthier customers, buying a property that will have a symbolic value, have motivations which are different from those of local people, and are willing not only to pay higher prices but also to accept unusual situations, such as waiting for years in order to have definitive ownership. Since the fair value of a property is very much based on the comparison with similar objects already sold in the market, prices in the resort are being pulled upwards.

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Also, some elements of the trade-off hypothesis (box 1) are not always respected, and a market in this upscale resort could turn out to be not so much a normal real estate market as a luxury one, where hedonistic values become more important than other, objective values. At that precise moment, a price bubble could be created. Nevertheless, given the high rates for renting apartments in Verbier, the author does not think that this bubble is irrational, although this deserves further, careful analysis, which is beyond the scope of this research. The author acknowledges that this is one of the limitations of the study, together with the fact that no empirical research has been carried out and the theoretical framework leaves out the segment of professional investors.

Acknowledgements The author would like to express her sincere thanks to the following persons: Dr. Philippe Favarger, Deputy Director of Housing in the government of the Canton of Geneva, for his precious support and advice; Professor Philippe Thalmann from EPFL, for his useful review of the first draft, Professor Andrew Harvey of Cambridge University, for the check of time series models, M. Daniel Guinnard, of Guinnard Real Estate & Tourism for the data and all the field information necessary for this research, and Céline Fellay of the same company; M. Stéphane Goeke, Head of Marketing at the Aéroport International de Genève, who provided the data series of passengers by destination and regarding the skiing market at the airport; Mr. Pierre-Yves Délèze, Director of the Tourist Office of Verbier; and Mr. Merrick Fall for editorial assistance in English. Nevertheless, any possible inaccuracy which the text may contain is the sole responsibility of the author.

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Bibliography Aéroport International de Genève. (2007). Arrivals to Aéroport International de Geneve (AIG) per origin; monthly series from Jan 2000 to Oct 2007. Marketing office AIG. Bieger, T., Beritelli, P., Weinert, R., & Wittmer, A. (2005). Building trust and identity on the Web - New IT transaction platforms to overcome psychological barriers to renting. In A. J. Frew (Ed.), Information and Communication Technologies in Tourism 2005. Proceedings of the International Conference in Innsbruck, Austria, 2005 Vienna: Springer. Blanchard, O. J., & Watson, M. W. (1984). Bulles, anticipations rationnelles et marchés financiers. Annales de l’INSEE, 54, 79–99. Cornuel, D. (1999). L’hypothèse de bulle immobilière, juillet 1999. [Electronic Version]. Observations et diagnostics économiques, Revue de l’OFCE, 70 from http://www.univ-lille1.fr/medee/publications/articles/cornuel_bulle.pdf. Credit Suisse. (2004). Thèse sur le tourisme. Les différentes stratégies touristiques en Valais. "Lits froids contre lits chauds". Economic Research. Ezekiel, M. (1938). The Cobweb Theorem. The Quarterly Journal of Economics, 52 (2 (Feb), 255–289. Favarger, P., & Thalmann, P. (2006). L’expertise inmobilière. Prix et valeurs. Lausanne: Press polytechniques et universitaires romandes. Fragniere, V. (2006). Deux stratégies opposée pour un même objectif. Le Nouvelliste, pp. 2–3. Guinnard, D. (2007). The share of Guinnard RS agency. In M. Scaglione (Ed.). Sierre. Guinnard real estate & tourism. (2007). Verbier real estate statistics. London Stock Exchange. (2007). History 2004 (Publication. retrieved 2nd December 2007, from London Stock Exchange: http://www.londonstockexchange.com/en-gb/about/statistics/ Matos, Rafael (2005) “The good alpine air in the tourism of today and tomorrow: symbolic capital to enhance and preserve”, Journal of alpine research, 93 (1), pp. 97–104 / pp. 105–113. Nappi-Choulet, I. (1999). La crise des bureaux: retournement du cycle ou bulle? Une revue internationale des recherches. Revue d’Economie Régionale et Urbaine, 2, 318–332. Nerlove, M. (1958). Adaptive expectations and cobweb phenomena. Quarterly Journal of Economics, 72, 227–240. Office fédéral de la statistique. (2001). Portrait de communes: OFS, Neuchâtel. Switzerland. Office fédéral de la statistique. (2007). Indice des prix à la consommation (Publication no. http://www.bfs.admin.ch/bfs/portal/fr/index/themen/05/02.html). Retrieved 2 décembre 2007, from OFS. Thalmann, P., & Favarger, P. (2002). Locataire ou propriétaire? (First ed.). Lausanne: Presses polytechniques et universitaires romandes. Vogel, H. L. (2001). Travel industry economics. A Guide for Financial Analysis. Cambridge:UK: Cambridge University Press.

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs

Rico Maggi & Claudia Scholz

Abstract Tourists like beautiful places. This should influence willingness to pay, demand for destinations and the development of places with its repercussions on real estate. But if the intention is to analyze these interactions empirically, a necessary first step is to measure the beauty of a place. This is what this paper tries to achieve. While the traditional focus in this context is on landscape and the (negative) impacts of real estate development on it, we concentrate on cityscape and city tourism looking for the positive – beautiful – aspects of the built environment as perceived by visitors. The underlying idea is that tourists take pictures and bring home souvenirs of what they like. Existing destination rankings fail by definition to account for unmeasurable dimensions of urban reality such as culture, atmosphere and aesthetics. But urban development driven by measurable dimensions only, might not be a good guide towards an attractive city and a competitive destination The ambition of this work is, therefore, to measure the un-measurable, the attractiveness of the cityscape, in the eyes of the beholder – the visitor, the commercial photographer and the artistic photographer. We have performed a content analysis of 225 photographs and using a set of 42 variables grouped in three modalities reflecting the content, the way of picturing and the spatial organization. The results have been used to identify underlying dimensions and clusters of images. The main result is a dominating dimension, namely a view on ’heterogeneous’, ’general built’ environment of ’contemporary’ architecture. The famous landmarks and icons of Dubai appear only in third dimensions in order of importance, while art and culture and entertainment are not a specific feature of the photographs. Regarding the ambition to compare urban beauty among cities, two aesthetic values were calculated for Dubai and five other cities. Dubai ranks low according to both measures and across all groups of observers. Keywords: Content analysis, photography, urban beauty

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1 Introduction This paper is about the perception of beauty of a cityscape as perceived by tourists in comparison to professional photographers. In city tourism the urban reality can be considered as a location of production of the tourism experience (Croce & Maggi 2007). Accordingly, the possible motives for city tourists are manifold, reaching from shopping to heritage and architecture, and from cultural to educational and sports events, but can reasonably be encompassed in a broad definition of cultural tourism as given by the Association for Leisure and Tourism Education (ATLAS). There, the conceptual definition is: “The movement of persons to cultural attractions in cities in countries other than their normal place of residence, with the intention to gather new information and experiences to satisfy their cultural needs ... ” (WTO 2005, VI). What is of interest here is that independently from the final scope of a visit, city tourism is happening in the built environment of the place – the cityscape as opposed to the landscape. And like in e.g. beach or mountain destinations, where the landscape can be the main driver, but mostly is just enhancing the tourism experience, the cityscape will normally set the scene for the tourism experience rather than representing its final aim (with the exception probably of architectural tourism). But as evidenced by Bilbao and the ensuing trend of architectural icons as an attractor, setting the scene can become a relevant strategic element of city marketing and hence tourism performance. Tourists prefer to go to beautiful, or better, attractive places. But does beauty refer to single architectural icons, to buildings in general, to skyscrapers or rather to open spaces? Moreover, would tourists refer those fast built skyscrapers as ’beautiful’? When people go to New York or Hong Kong they go for events, shopping and culture but also they go for the built environment. But, in contrast to many of Dubai’s buildings, neither Manhattan’s nor Hong Kong’s skyscrapers have been built for tourists. Tourists return home with ’beautiful’ memories which are captured in photographs as souvenirs. They pictured what they liked and do not repeat exactly the stereotypes of travel agent’s catalogues, inherently limited by their marketing purpose and probably their technical and professional knowledge. Consequently our question is: what do people take home from Dubai? Is there an ’urban attractiveness’, and can it be traced in the pictures of tourists? We expect Dubai to have a very specific beauty – driven more by an economic rationale than by aesthetic urban paradigms as it has excellent scores with respect to tourism as well as to real estate. It ranks on 1st position for the best beach holiday in 2008 regarding the website Trip advisor the content of which is user-created, so to speak tourist-created.

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But what about the cityscape of Dubai? The oft criticized applied building scheme of skyscrapers along the Dubai’s beach follows the pure market logic. What is scarce is the sea view and therefore the optimization lies in building up to permit as much people as possible this feature, but do the fast track constructions of skyscrapers attract tourists? We propose to measure and explain this perceived urban beauty in quantitative terms, based on revealed preferences of three groups of observers by performing a content analysis of photographs. Use of visual images as data material can tell us more about the multiplicity of meanings and messages as opposed to more traditional, normative data collection methods which seldom allow one to go further than frequency analysis. The application of the method ’content analysis’ on photographs for answering our question on the un-measurable qualities of urban situations is as any other theoretical method challenged through the way questions are asked. But taking photographs is a very clear activity. When someone takes a photograph they are implicitly assigning value to a certain scene, at that specific moment in time. Any kind of notion inside a picture is accredited a special value through being fixed and framed on paper or in some 2D region. While we do not impose a specific norm, through the selection of variables, our search for the attractiveness of a city is formed through our Western world view. The selected codes for the data structure were based on our ongoing research on the image of European cities, where categories were drawn from those identified by Kevin Lynch (1960) – landmark, path, districts, edges, and nodes. “Many studies confirm the stability of these five elements across a variety of populations and cities ... Controlled experiments using a statistical technique called cluster analysis also confirm the validity of the five elements …” (Nasar 1998, p. 7). Inhabitants share the same meaning about defined features. For example people like places of open space and scenery (’openness’) and dislike places for their restriction, crowding, congestion and narrow roads. As our objective is focused on urban situation seen by a wider range of people rather than on the ’image’ of the place, we use three perspectives: amateur photographers (our tourists), commercial photographers, and artistic photographers. Among these three, only the commercial photographers will necessarily choose a perspective that “sells” Dubai. Artists will have a more critical, analytical eye, while amateurs simply represent the tourists as residents rarely take pictures of their own city.

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In a previous research Govers & Go (2005) have analysed photographs from “official” websites like Dubai Tourism, Dubai E-Government, UAE Ministry of Information and Culture, Abu Dhabi Chamber of Commerce etc. which are clearly motivated through the destination marketing for the tourist market. Their results differ significantly from ours due to the different sample and the restriction of the content analysis to the motives found in the pictures. We analyze correlations among picture attributes using cluster analysis to measure urban beauty and to discover similarities and differences among different observer groups. Furthermore, our coding scheme permits us to calculate an aesthetic measure for Dubai and five other cities, and compare it across the groups of observers. This is the first time to our knowledge that these measures have been calculated in this context. In what follows we will introduce Dubai as an example for an instant city, and present the way in which we measured attractiveness. We then discuss the results of the statistical analysis, including the measures for 6 cities followed by some conclusions.

2 Background: Profile of Dubai This is the new world, young and unique in its Western derivative expression. Without any remarkable historical, natural or religious sites, Dubai reinvented itself with artificial islands, faked souks, indoor ski slopes as an international destination for shopping, tourism and business initiatives in the Middle East. But the descriptions of Dubai are contradictory. Some speak of the city of superlatives – everything is the highest, the biggest, the largest; others from the city of ’gatedness’, ’sameness’, ’fadeness’ and ’maleness’. In its run for exceptionalism all has become the same. Dubai, as every city, has thus its historical, sociological, economic and political specificities which are important to understand its form. The most interesting historical feature in our context seems to be the fact that this city has been built not in response to the people inhabiting it but as part of a global strategy. Dubai’s diversity of people and cultures attracts especially ambitious young professionals from all over the world who stay an average of 2 or 3 years. Most liked is the buzz of working in a multicultural environment, followed by the ability to have unparalleled leisure facilities, a vast ocean and desert escapes where they can recharge their batteries. If according to Glaeser (2001) urban success comes from being an attractive ’consumer city’ for high skilled people, then Dubai might be an extreme sample – a city almost exclusively built for expatriates and (foreign) investors. This relates to the second specificity: the sociological mix is characterized by small local elite, a small group of Western and Asian expatriates, and a majority of immigrant workers.

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Foreigners make up 85% of the population – none of the diverse groups is able to form a relevant mass of active citizens. Immigrant workers do not have the money neither the rights to express a demand regarding their environment. Wealthier expatriates often do not have the time or interest for interaction with the city development as they stay only for short periods. Therefore, the economic logic is driven by partly speculative real estate investments in view of the transformation of the city in a financial centre and a tourist magnet. The planning seems to promote this development by encouraging huge and prestigious development projects without a view for the conventional public urban space. Market logic is dominating, resulting in investments in high end apartment buildings targeting vacationers, featuring specific services and incentives. Developers built hundreds of miles more in shape of Palm Jumeirah and The World – Islands to give maximum beachfront area. Most of the 500 skyscrapers under construction are built on generous spots, which is paradox as skyscrapers are usually a sign of land scarcity. However, beneath the city’s glitter serious problems are arising. The infrastructure is overtaxed, inflation is climbing, and crime and prostitution are on the rise. Dubai isn’t subtle; it is crowded and has a smoggy skyline though all is new. There is scarcely open space or an uncongested highway. Given this very special background we expect our analysis to produce results that define an aesthetics that differs from what we know either from tourist catalogues, or from comparing oriental as well as Western cities – a beauty based on a recently constructed built environment.

3 Coding scheme ’attractiveness’ Our measurement is based on Kant who defined the principles of beauty and aesthetic value in the perceiver, and we therefore consider as important the participation of the individual in the process of evaluation. However, we will confront our results with normative measures of beauty derived from the writings by Plato, who believed that beauty exists for its own, independently from subjects. These measures capture beauty in terms of aesthetic attractiveness with complexity and order as components and have been defined by Birkhoff (1933) and Eysenck (1970). Complexity is seen as positive, as it activates the brain activity. The more energy I put into understanding something visual, the more beautiful it becomes up to a specific point, where complexity capsizes in chaos. We analyze complexity through diversity of buildings (building epoch, building types) and their formations.

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The use of visual material employing the research technique of content analysis has been used in many studies. Beside the general criticism of pure ’quantification’ this method has proved to be reliable for a qualitative interpretation, too (Lutz & Collins, 1993). Our analysis goes beyond the commonly applied method of content analysis (Sternberg, 1997) as it focuses on the content shown in the photographs and their derivative meanings, too. The interplay of elements and not the analogy of a form were what interested us. Typically the interpretation of visual images occurs on three modalities at which the meanings of the picture are made: the site of production, the site of the image itself, and the site where it is seen by various audiences. In the current research we look only at the second, the image, and its compositional qualities, distinguishing three groups of criteria, namely those of content, spatial organization, and way of picturing. The way the space is organized refers to two aspects: the organization of the space ’within’ a picture, and the way the spatial organization of a picture offers a particular viewing position to its onlooker (Rose, 2006). The subdivision is important for several reasons. First, concentration purely on the content of photographs holds the risk to neglect the specific perspective of the observer which is relevant and tells its own story as will become clear from the results. Second, applying traditional content analysis, the focus is mostly on objects, i.e. explicit content, and not on things left out – space. To sample the data, an online search was conducted to find representative websites. Twenty websites were selected and searched for photographs of Dubai taken in the last 4 years, and grouped depending on that made the photograph: 1. professional: professional photographers working for photographic co-operatives like the agency Magnum (owned by photographer members) and not aiming to sell the location 2. amateur (tourists): amateur photographers where we gathered the photographs from websites like flickr, google, smug; 3. projected (commercial orientated): professional photographers working for photographic agency which the principle aim to sell for marketing proposes, for example corbis or getty. This group aims to project a destination identity. The partition was not only necessary because reasons why the image is taken differ extremely but was also driven by our interest in the specific tourist view. There is a strong dependence between groups 2. ’amateur’ photographs and group 3. ’projected’ photographs as amateurs tend to photograph what they already know from advertisement and marketing.

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs

From each website up to 150 images (depending on disposal) were downloaded. To the circa 2000 collected images we applied a statistical random sampling method which selected 15 images/source. The data quantity resulted in 75 images/ perspective (amateur, professional, projected) and 225 images in total. Having selected the samples of the photographs to work with, we mapped a set of categories for coding the images, which were developed in a previous research concerned with the evaluation of ’attractiveness’ in European cities. Afterwards all photographs were coded by one coder in a short time span, diminishing thus the risk of an altering mindset. Coding categories (for detailed description see appendix table 6): 1 History of place (historical significance) 2 Elements 3 Main motive 4 Content 5 Uniqueness 6 Crowdedness by people 7 Amenities & Elements for pedestrian 8 Public Art 9 Naturalness (presence of nature) 10 Light/light effects 11 Surprise 12 Spaciousness 13 Uniformity 14 Visual complexity 15 Level 16 Motive in foreground or background 17 Brightness 18 When taken 19 Vantage point Not all categories would be considered ’enlightening’ for the evaluation of an Arabic city, where the climatic situation naturally excludes some Western world urban features such as pedestrian amenities. We kept them in order to see how big might be the existing influence of global design rules. As tourists tend to take photographs during the day the differences of night and day were not highly valued.

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Every object offers different meaning at different levels. In picture on a Macro Level (XL) they are associated with the key attributes of the natural setting of the city and have more symbolic meanings. At an intermediate Level (M) objects reflect the building and street patterns and their formal aesthetics; and on the Micro Level (S) they make the sensory aesthetics of the environment recognizable by focusing on materials, textures etc.

4 Data analysis The results of the frequency analysis of the 225 photographs analyzed confirm that there is a discrepancy between the publicity image and the way different groups of observers see Dubai identity. In our analysis focussing on cityscape, tourists like professional photographers see a Dubai that is different from the one in the prospectus, and from that found by Govers & Go (2005). Overall, we observe as the top classified attributes the following: contemporary architecture, brightness (or daylight), general built environment and individual contrasting elements, and an intermediate view level. Most pictures share a view on the central object with no space captured and tend to have the motive in the background (with the exception of tourists). While ’projected’ often catch complexity in their images distinguished by the presence of few people, photographs by tourists and professionals tend towards simplicity and contain views on streetscape (districts). Finally projected and professional differ with respect to the perspective, the first ones preferring above eye level view, the second eye level.

main attributes contemporaneous bright

source : unknown amateur picture

general built individual day intermediate level central object simplicity district background eye level

Table 1: The picture illustrates the dominant view (across all groups) of Dubai.

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs

Altogether this first analysis verifies that 96% of Dubai has been built recently (see for this and the following figures table 7 in the Appendix). A vast majority of the photographs (83%) have the attribute ’built space’, but miss the attributes of public space which describe urban life in Western cities. Public art (0%), amenities (1%), street events (1%) and lampposts (2%) are practically absent in the photographs. Regarding the way of picturing most of these photographs are taken at daylight, having the vantage point at eye level. For a place being built in the desert we found surprisingly often (36%) nature attributes like ’trees’ and flowers and ’overall vegetation’ (parks). Items characterizing the quality of space yield a further inter-esting result. Given that judgements on the quality of space are subjective, we have defined an easy common denominator, distinguishing between a ’uniform building scheme’ (repetition of the same building units or buildings with strong design guidelines) and ’individual’ building schemes (reflecting the free market situation). 76% of all photographs are coded with individual building styles. It is no surprise, therefore, that 58% of the photographs represent space focussing on a ’central object’ while ’open views’ characterize 29% and ’defined spaces’ only (13%). We conclude that, at least in the perception of our three categories of observers, there is little concern for space in Dubai. While the dimensions of photographs taken by tourists, professional and commercial (’projected’) photographers are remarkably similar as far as the dominating items are concerned, some interesting differences emerge. These regard the presence of trees, perspectives at or above eye-level, crowdedness, complexity, microlevel and photographs taken at sunset/sunrise as illustrated in table 2. Commercial commissioned photographers (projected images) take 25% more photographs of complex situations than tourists do. The images are captured more during sunset and sunrise with the vantage points above the eye level. Their professional assignment forces them to look for more dramatic situations and the most embellishing lights, which is the one of the sunset or sunrise. Professional photographer, in contrast to projected, tend to take photographs at eye level of crowded places, and they see less trees than the other two groups – a result of their quest for picturing real life in the city? As compared to professionals, tourists are more likely to perceive Dubai as a city with trees and tend to take photographs of peaceful atmospheres with the vantage point above eye-level and few people (their travel mates?).

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Table 2: Different perspectives of amateurs, professionals and projected

In order to get a more comprehensive impression of dominating dimensions in the photographs correlations among variables have been used to form clusters identifying hidden common dimensions. Given that all our variables are dichotomic (absence or presence of an item) we have chosen clustering variables rather than applying a principal component analysis1. We find four distinct dimensions the first three of which are described in table 3. The results show the similarity among the three groups of observers as far as the relevance of dimensions is concerned, but we also can gain some additional insight. We call the dimension identified by the first cluster “Cityscape”. This dimension aggregates some of the most frequently present attributes on photographs and identifies therefore the dominant underlying dimension of photographs of Dubai. We describe it as a view on ’heterogeneous’, ’general built’ environment of ’contemporary’ architecture.

___________________ 1

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The algorithm “size difference” of the SPSS package was used for this purpose. The detailed results of the analysis are available from the authors upon request.

A perspective on beauty – Reading urban attractiveness via content analysis of photographs Dimension 1

Dimension 2

Dimension 3

CITYSCAPE

PEOPLE

LANDMARKS

Complex visual scene of peaceful districts at eyelevel with the main motive in the foreground

Open views including icons, landmarks and trees above eye-level

Peaceful districts at eyelevel with the main motive in the foreground

visual scenes including landmarks and trees are viewed above eye-level

Complex visual scenes above eye-level with few people and the main motive in the foreground

Open views including landmarks, trees, an overall landscape and districts at eye-level

Complex visual scenes with few people and main motive in the foreground

Views on heterogeneous districts at eye-level

All

Amateurs (tourists)

View on heterogeneous general built environment of contemporary architecture

Projected (commercial orientated)

Professionals

View on general built environment of contemporary architecture

Table 3: The 3 main hidden dimensions

The second hidden dimension, “People” groups variables of intermediate weight and characterizes a complex visual scene of peaceful districts at eye-level with the main motive in the foreground. The third dimension, “Landmarks”, represents correlated variables of low to intermediate weight and offers open views within icons, landmarks and trees pictured with a vantage point above eye-level. The famous landmarks and icons of Dubai are thus present, from a visitor’s perspective2, as the third most important dimension only. Overall, the typical Dubai picture therefore represents contemporary buildings, then streetscapes with few people (sometimes only the amateurs themselves), then landmarks and rarely art, culture, entertainment and events.

___________________ 2

Note that we consider all three categories as visitors, all be it in different ways and with different purpose.

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While the frequency counts and the clustering of variables can thus give a clear idea of the communalities among the photographs in terms of dominating items, they do not tell us much about significant differences among groups of photographs. E.g. the first above dimension contains items that are practically present on every photograph and hence do not make a difference. With a TwoStep Cluster analysis we have therefore clustered the photographs (cases) instead of the items (variables). Individual cases are combined to form clusters based on a nearness criterion. Variables that are not dominating the image of Dubai will discriminate more. We report in table 4 the three most important variables characterizing each cluster, where importance is a combination of the weight of the variable in the cluster according to the statistical procedure, and the weight of the variable across all photographs. The names of the clusters represent labels that have been chosen interpreting these three most important variables and indicate thus three distinct characters of views on Dubai that are otherwise rather uniform. Cluster 1

Cluster 2

Cluster 3

Panorama

Landmark

Ambience

41

33

26

Variable 1

Open view

Above eye level

Defined space

Variable 2

Macro view

Landmark

Crowded

Variable 3

Surprise

Sunset / sunrise

Art / Culture

Name % of photographs

Table 4: Clustering Dubai photographs (all observers)

Looking at these clusters one has to remember, that independently from the membership of a picture to one or the other cluster, they will almost always contain contemporary architecture (the above hidden dimensions). The first and largest group of photographs distinguishes itself from the others by an open bird’s eye view with sometimes surprising contents – we call it “panorama”. The second cluster, containing a third of the photographs is characterized by above eye level views on landmarks, often at sunset or sunrise – we call it “landmark”. Both clusters have in common that the most discriminating variable is the way of viewing rather than the (mostly identical) content. The third and smallest cluster contains photographs which are distinct with respect to the representation of space, sometimes but not always representing crowded streetscapes and art and culture – we call this cluster “ambience”.

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs

So far we have been analyzing the beauty of Dubai as contained in the eyes of the beholder. We now want to confront this with a normative view. Attaching a value to the pictures implies imposing a norm which permits – like in other rankings – for comparisons across cities. We apply two measures that can be found in the literature. The first one, developed by Birkhoff (1933) assumes that the aesthetic value increases with the order in the picture and with its simplicity. Birkhoff therefore proposes to calculate the measure M for the aesthetic value as the quotient of order (O) and complexity (C). A second measure, developed by Eysenck & Castle (1970) proposes in contradiction to Birkhoff to measure M as the product of O and C. Applying these measurements to data from picture content analysis and selecting as the indicator for order our variable ’collective scheme’ and for complexity our synonymous variable, we presented the values for the two measures (ordered by Eysenck ’s measure) in table 5.

City

Total

O

C

number of

(collective

(visual

analysed

scheme)

complexity)

MBirkhoff = O / C

MEysenck = O * C

tourist pictures Amsterdam

47

43*

53*

0.81

2279

Zürich

75

34

52

0.65

1768

Krakau

88

27*

53*

0.50

1431

Stockholm

75

26

35

0.74

910

Barcelona

40

13*

43*

0.30

559

Dubai

75

16

27

0.59

432

Table 5: Aesthetic measure calculated on tourist pictures * as the available data is not equivalent to all cities, the numbers were calculated in relation to a total number of 75. This is used for the calculation of the aesthetic measure.

Comparing the two rankings we find as a first thing a surprising consistency among the two measures indicating that “order” seems to dominate, i.e. to be more discriminating than “complexity”. This order is more present in the pictures taken by tourists to European cities – with the exception of Barcelona and Krakau. Secondly, Dubai ranks higher (4th instead of last) when complexity reduces beauty rather than when it enhances it.

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Finally, Barcelona as a top destination ranks lowest among the European cities. Comparing now the two financial centres we note that Zurich ranks clearly higher than Dubai according to both measures (note that we analyzed the same number of photographs in each category for both cities). More significantly, the advantage of Zurich over Dubai is much more obvious for the measure which gives weight to complexity3. However diversity is an attribute which is also created in the course of time and therefore instant cities like Dubai have not reached their full potential in this field. Though the application of these measures serves mainly for illustration they are thought provoking. In a Birkhoff worldview beauty comes from order and simplicity, and cities ranking high should attract tourists with respective taste. Alternatively, a top rank in the Eysenck ranking indicates attractiveness for visitor segments with a preference for diversity.

5 Conclusions The ambition in this paper was to measure the hidden dimensions of the urban beauty of Dubai in the eyes of the observers. Our analysis is not based on how we see Dubai but how a broader range of persons see it. We have performed a content analysis of 225 photographs using a set of 42 variables grouped in three modalities reflecting the content, the way of picturing and the spatial organization. The results of these measurements have been used to identify three hidden dimensions and three clusters of images, and calculate measures of the aesthetic value of Dubai. A first important result concerns the presence of a dominating dimension in the large majority of photographs, namely a view on heterogeneous general built environment of contemporary architecture. The famous landmarks and icons of Dubai appear only in third dimensions in order of importance, while art and culture and entertainment are not a specific feature of the photographs. The most discriminating variables are those measuring the way of viewing rather than the content. The largest cluster of photographs distinguishes itself by its panoramic view with some surprises. Observers do not seem to perceive the missing urban space as discriminating. Regarding the aesthetic value we find that professionals observe the highest degree of beauty, while amateur photographs of Dubai results in the lowest aesthetic value according to Eysenck i.e. if complexity is enhancing beauty, and Dubai ranks relatively low in the pictures of tourists according to both measures.

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Comparing across groups of observers (not presented here) we note that agencies catering for tourists take the relatively most complex photographs and thus rank low according to Birkhoff and high with respect to Eysenck. Professional artistic photographers satisfy both aesthetic criteria while tourists tend to see beauty in simplicity.

A perspective on beauty – Reading urban attractiveness via content analysis of photographs

Without taking a definite position which calculated aesthetic value might be the better one, we find ourselves closer to the one proposed by Eysenck, which is more consistent with measuring attractiveness as defined by recent economic research on consumer cities by Glaeser (2001). Glaeser’s idea is that a beautiful or attractive city is reflecting the diversity of its inhabitants as well as activities in a complex image. These results give indications for Dubai on the critical aspects for increasing attractiveness of the city via its quality of life. On a more general level our findings, based on the revealed view of a large group of observers with different perspectives, should help to orientate the urban development strategy in general and not only from an economic perspective. We thus believe that our research based on a quantitative analysis of beauty can make a relevant contribution. Before proposing to apply these measures for management and marketing purposes, more research is needed. Future efforts should introduce another meta-level in the coding process, one that considers different perspectives in the judgmental process. As different coders interpret what seems to be the same code in different ways a sub-sampling of different coders seems appropriate. Also, rather than applying beauty norms from art history, it would be fruitful to have the pictures evaluated (in forms of rankings, willingness to visit/pay etc.) by control group so that the dimensions identified by our content analysis would become determinants of different kinds of beauty. Nevertheless, we are confident that our analysis helps to empathise and visualize feelings different people have in Dubai, and give impulses for guiding development to invest in aesthetics. It should include ethnical, functional and physical (environment) diversity.

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Bibliography ATLAS (2005): Cultural Tourism in Europe (Greg Richards, ed.) http://www.tram-research.com/cultural_tourism_in_europe.PDF Birkhoff, G. (1933). Aesthetic Measure. Cambridge : Harvard University Press. Croce, V. & Maggi, R. (2007). International tourism demand in multioption destinations: a characteristics approach. Paper presented at the 1st IATE Conference Palma de Mallorca Chalfen, R. M. (1979). Photography’s role in tourism: some unexplored relationships. Eysenck, H. & Castle, M. (1970). Training in Art as a Factor in the Determination of Preference Judgments for Polygons. British Journal of Psychology 61, 65–81. Glaeser, E. L., & Kolko, J., & Saiz, A. (2001) Consumer city. Journal of Economic Geography, 1, 27–50. Govers, R. & Go, F. M. (2005). Projected Destination Image Online: Website Content Analysis of Photographs and Text. Information Technology & Tourism, Vol. 7, 73–89. Lynch, K. (1960). The image of the city. Cambridge: MIT Press. Nasar, Jack L. (1998). The evaluative image of the city. Thousand Oaks: SAGE Publication, Inc. Rose, G. (2006). Visual Methodologies. London: SAGE Publications Ltd. Wileman, R. E. (1983). Visual Communicating. Educational Technology Publications. New Jersey: Englewood Cliffs. Zeki, S. & Kawabata, H. (2003). Neural Correlates of Beauty. The American Physiological Society 91, 1699 – 1705, 2004. World Tourism Organization and European Travel Commission (2005). City Tourism & Culture – The European Experience. ETC Research Report N° 2005/1, Brussels

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs

Appendix

CONTENT

Nr. 01

Category

Symbol

Description th

th

Definition

History of

(A)

• 18 / 19 century

The definition of the histori-

place

(C)

• contemporaneous

cal significance is based on the principle element pictured, not the most recent one.

02

Elements

(D)

• districts – characteristic area (streetscape etc.)

(E)

• edge – lakefronts, ocean-

In the case of 2 or more situations presented in the picture, the choice was made

front’s, riverfronts, Harbor

regarding where the focal

fronts

point is.

(L)

• landmark

(N)

• nodes - building plazas,

(C)

• art/culture (historic site, art),

squares, urban parks 03

Main motive

(R)

single building or object • religious place

“Historic site” might be viewed as opportunity to increase knowledge, whereby religious pilgrimage or places have a unique psychological attribute.

04

content

(E)

• environment ((physical set-

(G)

tings : beach, geographical

(C)

features, parks) • general built form (general building architecture, specific structure of interest) • cultural & entertainment (night club, sport, theme parks, events, festival, spectacle, Temporary Uses Programming – Events, food, shopping area)

05

Uniqueness

(UB) (UF)

• unique icons built, such as Sydney Harbour bridge • special events, like festivals

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Rico Maggi, Claudia Scholz 06

07

Crowdedness

(R)

• restful/relaxing (0-2 persons)

by people

(C)

• crowded

Amenities &

(C)

• cafes

Elements for

• kiosks & carts

pedestrian

• pedestrian amenities • seating

08

Public Art

(A)

• public art

09

Naturalness

(T)

• single trees/flowers

(O)

• overall vegetation (park)

10

Light/light

(I)

• installations / building

effects

(L)

lightings

(S)

• lamppost

Value the presence of nature.

• outdoor scones

SPATIAL ORGANIZATION

11

12

When taken

Spaciousness

(D)

• day

(S)

• sunset/sunrise

(N)

• night

(D)

• deflected view / enclosed

(types of limitation)

depth (narrowness) / closed (O)

form - defined space (strong physical form)

(C)

• wideness and open view / visual scope (panorama)scenery, more than one focus • central object, no space captured

13

Uniformity

(I)

• individual freedom (Contrasting elements)

(C)

• collective scheme (uniform),

Individual freedom is for the sake/benefit of a higher and collective scheme, where the

part of a bigger whole :

parts become something

situation

greater by contributing to a whole.

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A perspective on beauty – Reading urban attractiveness via content analysis of photographs 14

Visual com-

(C)

• complex

Complexity relates to num-

plexity

(S)

• simplicity

ber of different elements and their distinctiveness in one scene (one system). People notice variation in complexity – the interest, excitement, viewing time increase. Even if it is highly subjective, the notion of existence is possible. We

WAY OF PICTURING

aim not to quantify it. 15

Level

(XL)

• macro level (bird view etc.)

Big scale has the capacity to

(M)

• intermediate level (street

dislocate the body in a

(S)

ambience etc) • micro level (one single

physical or mental journey – it is seen as positive.

object) 16

Motive in

(F)

• foreground

foreground

(B)

• background

(B)

• bright

Defined through atmosphere

(D)

• dark

in the space (narrow street,

or background 17

Brightness

bright buildings) 18

Surprise

(SU)

• surprise

Surprise effect is very hard

• not surprising

to define, but we consider it as matter of content than form.

19

Vantage

(A)

• above eye level

All space is organized

point

(B)

• below level

around an oriented

(E)

• eye level

standpoint of a human body

Table 6: Detailed description of coding scheme

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AMATEUR CONTENT

PROJECTED

PROFESSIONAL

ALL

ALL (%)

contemporaneous

75

70

71

216

18th century

0

5

4

9

4

district

39

31

46

116

52

edge

14

16

13

43

19

landmark

21

25

14

60

27

parks/plaza

1

3

2

6

3

art/culture

0

4

4

8

4

religious

3

2

2

7

3

environment

3

4

5

12

5

general built

71

69

63

203

90

96

cult./entertainment

1

2

7

10

4

icon

15

25

22

62

28

events

0

0

3

3

1

relaxing

35

38

33

106

47

crowded

4

0

20

24

11

amemties

0

0

3

3

1

public art

0

1

0

1

0

trees

30

28

13

71

32

overall

1

6

2

9

4

lampost

1

2

2

5

2

installation

7

12

5

24

11

day

54

45

60

159

71

night

8

6

9

23

10

sunset/sunrise

13

24

6

43

19

SPATIAL

defined space

9

8

13

30

13

ORGANIZA-

open view

20

28

17

65

29

TION

central object

46

39

45

130

58

individual

59

60

53

172

76

116

collective scheme

16

15

22

53

24

complex

27

46

32

105

47

simplicity

48

29

43

120

53

forground

40

37

33

110

49

background

35

38

42

115

51

A perspective on beauty – Reading urban attractiveness via content analysis of photographs

WAY OF

micro level

8

10

18

36

16

PICTURING

intermediate level

56

46

49

151

67

macro level

11

19

8

38

17

bright

71

71

71

213

95

dark

4

4

4

12

5

surprise

6

3

10

19

8

eye level

34

25

52

111

49

above eye level

28

42

12

82

36

below eye level

13

8

11

32

14

Table 7: Content analysis results (N=225)

117

Section 3: The Socio-Economic Impacts of Real Estate on Destinations

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The economic impact of tourism in private homes: The case of the Lipari Archipelago

Giovanni Ruggieri

Abstract Private homes are a specific form of tourist accommodation often used in seaside destinations, particularly on the islands. An increasing use of private homes for tourism in small and medium size islands could be due to the increasing levels of tourism, or used to offer a different accommodation service, or, often today, to satisfy an upcoming tourist need. Recent studies show that the importance of this phenomenon is no longer negligible. Tourism demand attracted by private accommodation offers an additional economic impact for the islands and a new challenge for sustainability programmes. The aim of this paper is to verify which the main economic impacts of this kind of tourist accommodation are and if there is any difference between the behaviour of tourists using private homes and those using registered accommodation structures. A matrix was calculated to analyze tourists’ behaviour in the Eolian Archipelago (Western Mediterranean), and their expenditure patterns. The results seem to show that tourists choosing private homes have their own characteristics in terms of expenditure behaviour and have the same strong impact as the tourists using traditional tourist accommodation. We will also look at strategies in order to increase benefits of this kind of offer, which is yet unsupervised. Keywords: Private homes, tourist expenditure, islands economies

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1 Introduction Relationship between tourism development and social-economic and environmental impacts in the islands have also been investigated by different authors (McElroy, 2003, Riley, 1995, Pigliaru, 1996, Concu, 2000) and from different points of view, but all argue that tourism has a strong role in determining development patterns. Islands are affected by structural problems and handicaps due to their insularity, geographical isolation and low population density. The vulnerability of this territory (Briguglio, 1995) is also increased by tourism industry that, in most of the small and medium islands (SMI), represents the prevalent economy (Manente, Montaguti, 2004). Tourism represents for SMI a single industry often tied to seasonality, with problems to carry capacity and with limited connections that reduce the international tourism markets opportunity. SMI are also characterized by a relevant presence of empty or underutilized private homes, caused by the people moving to bigger cities. From these considerations, it could be interesting to know how a SMI accommodation system, based on private homes for islands, is used or could be better used for tourism in order to develop additional tourist flows and to activate related economies. In the first part of the paper we will present the characteristics of the Real Estate Market in a Mediterranean Archipelago, trying to compare the tourist flow with the ones generated from the second home market. In order to study the impact of tourism in private homes, we investigated tourism demand in the Eolian islands, a Mediterranean Archipelago, very well known for its central position and for the beauty of the marine and volcanic landscapes. The archipelago is composed by seven small islands, different for tourism demand. Three of them have an ancient tradition for tourism - therefore have many hotels - while in others, tourism has just began no more than two decades ago, since their standards were low and uncomfortable (lack of electricity, lack of streets, lack of restaurants and hotels). In the second part we introduce some results of the research done during the year 2004 (Parroco A. M., Vaccina F.; 2005) in the Archipelago, trying to delineate the expenditure patterns and compare two kinds of tourist: the one who chooses traditional hotels and the one who spends his holidays in private homes.

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The economic impact of tourism in private homes: The case of the Lipari Archipelago

2 The real estate market in the Eolie Archipelago The Eolian archipelago is composed by seven islands located in the Western Mediterranean Sea; it was added to the UNESCO heritage list and is perceived as a sole tourist destination for holidays. The tourist offer is composed by 88 hotels and 122 registered other types of accommodations (Camping, country houses, agro tourism, B&B etc) for a total of 5.658 beds offered daily on 2004. Other accommodation no houses

Hotels

Eolie Archipelago

Total

numbers

beds

numbers

beds

numbers

beds

88

3.749

122

1.909

210

5.658

Table 1: Beds in hotels and other registered accommodation (2004)

As for the SMI, Eolie Archipelago presents a relevant number of private homes half of them not steadily occupied, but all represent a formidable potential real estate market for the Archipelago.

Eolie Archipelago

Total houses

Houses occupied by residents

Houses not stable occupied

Houses stable rented to tourist

Total beds offered to tourists

10.130

5.144

4.949

1.200

4.800

Table 2: Number private homes rented to tourist and number of beds (2004)

At the local level, tourist authorities are well conscious of the phenomenon of the private homes. In 2004 they estimated 1.200 homes available as extra beds for tourists, these developed 4.800 beds more. It means that in the Eolian Archipelago tourist offer is exactly divided in two parts: private homes (not registered) and hotels and similar. From the demand side, the table shows the total overnight per year generated from traditional accommodation system (hotels and similar).

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Giovanni Ruggieri Hotels

Other accommodation

Arrivals Overnights Arrivals

Total flows

Overnights

Arrivals

Overnights

87,676

101,553

465,939

Eolie Arcipelago 84,098

340,488

17,455

Table 3: Tourist flow on registered hotels ad registered accommodation (2004)

Preceding researches estimated to 234.056 the total overnight per year coming out from private homes (S. De Cantis, Volo S. – 2004). Looking at the dimension of the phenomenon, we present the occupancy rate separately for traditional accommodation and for private homes.

Hotels

Beds Overnights Occupancy Rate year

Other accommodation Houses rented to no houses tourists

3,749

1,909

4,800

340,488

87,676

234,056

00:25

00:13

00:13

Table 4: Occupancy rates registered and not registered accommodation (2004)

The occupancy rate result for private homes is similar to “other accommodation”. Viewing the performance monthly, during the summer season, private homes reach a higher average stay (15 days) than other accommodation (6 days), generating a more than doubled result in terms of overnights. This shows that homes today, more often rented during the summer season, represent an important reality for the tourist economy of the Archipelago, providing additional tourist flows able to generate relevant local economies.

3 The survey in Eolie Archipelago Starting from the relevant presence of tourism in private homes in the Eolie Archipelago, a survey was conducted during the year 2004. The Research project, sponsored by the Italian Ministry of Research and from some private and public companies, determined the real dimension of tourist flows, including the ones in rented or private homes.

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The economic impact of tourism in private homes: The case of the Lipari Archipelago

For this purpose 2.000 questionnaires were distributed in the main harbour of the Eolie Archipelago during July and August 2004 to the tourists at the end of their holiday. A sample design is described in the main research book (Parroco, Vaccina 2004). The sample design was constructed considering two different kinds of tourist: the unofficial and the official one. The two categories are identified according to the following items, present in the questionnaires. The classification, based on some aspects comparing the services provided from traditional accommodations and the private homes, is useful to separate the two different kinds of tourists: the ones that chose homes and the others who chose holidays in registered accommodation that we called “official” because they are already monitored by tourism statistics. Spent holiday in registered accommodation (Hotel, residence, resort, agrotourism) Official tourist

If he paid by credit card If the accomodation provides a restaurant service or breakfast

If the accomodation has services related to the hotel Un-official tourists Spent holiday in private houses or friend’s house (own house or guest) Spend a holidays in private or friend’s boat Un-official tourists Spent holiday in a rented home (rent a house) Paid by cash, or by money transfer

Figure 1: The identification of official and un-official tourist

The total valid questionnaires at the end were 1.839, divided in 1.103 filled out by un-official tourist and 736 by official ones. The differences between these two categories were calculated considering characteristics above, excluding the ones that were in the Archipelago for daily visits.

4 Expenditure patterns Comparing the expenditure patterns between official tourists and ones who rent a vacation home, it is possible to confirm that the average expenditure per capita (total expenditure / tourist arrivals) is the same. It shows that tourist in homes spend a similar total amount of money in the destination (not considering the expenses for travelling to the Archipelago). Who rents a house takes a long stay vacation rather than one who chooses hotel accommodations.

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Giovanni Ruggieri

The daily average expenditure per capita [(Total Expenditure / arrivals)/overnights] is less than one of an official tourist. Similar are the amounts calculated for the average expenditure per Diem (Total Expenditure/overnights).

Tourist typology

Average expenditure per capita

Daily average expenditure per capita

Average expenditure per die

Official tourists

€ 469.52

€ 84.03

€ 186.87

Un-official tourists (rent a house)

€ 468.30

€ 64.26

€ 155.50

Un-official tourists (own house or guest)

€ 289.11

€ 34.19

€ 70.45

Table 5: Expenditure index by tourist typology (2004)

The tourism expenditure behaviour matrix describes some differences that are strongly related to the percentage of unofficial tourist that are owners or friends of the owners of second homes. They do not spend money for accommodation but spend more for other services like food (0.37 compare to 0.23) or shopping (0.16 compare to 0.03). Quite similar are the expenditure patterns for tourists who rent a home compared to the official ones. The matrix also describes that there is no a relevant difference in the behaviour between tourists using private accommodation and those using registered accommodation structures.

Typology

Transport

Accommodation

Food

Excursions and cultural events Shopping

Other categories

Official tourists

0.21

0.42

0.23

0.09

0.03

0.02

Un-official tourists (rent a house)

0.23

0.41

0.21

0.08

0.02

0.05

Un-official tourists (own house or guest)

0.27

-

0.37

0.10

0.16

0.11

Table 6: Tourist expenditure behaviour matrix

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Calculating the total overnights for each tourist type, with the above matrix, we present the total expenditure matrix on the Eolie Archipelago.

Food

Excursions and cultural events

Shopping

Other categories

Tourist typology

Transport

Accommodation

Official tourists

4,5941,213

92,451,221

50,579,087

18,835,897

5,753,590

4,725,382

44,939,454

23,017,769

8,768,674

2,192,168

5,480,421

-

6,357,529

1,734,660

2,775,456

1,908,126

Un-official tourists (rent a house) 25,209,938 Un-official tourists (own house or guest) 4,612,461

Table 7: Total expenditure matrix

In terms of economic impact the matrix results in transport/accommodation/food expenditures for unofficial tourists, who rent homes, equal to more than half the same total expenditure of official tourists.

5 Conclusions Today a large part of tourists requests holidays choosing private accommodations. This shows the opportunity for a new market, often perceived as heterogeneous, spontaneous, not intermediated, and with a low level of economic impact on tourist destination. Due to the increasing levels of tourism or just to offer a different accommodation service, the underutilized homes tourism, in the case of the Eolie Archipelago, constitutes an important and growing new factor for its tourist market. Research results demonstrate the additional economic impacts provided from the tourism activities connected to the rental house market. The disregard of the importance of this part of the tourist offer is due to the lack of information regarding the rental or private occupation of these homes, and also to the presence of unconventional travel intermediaries such as the Web and the real estate agencies. The presence of a strong seasonal tourist market, prevalently sustained by a tourist demand coming from close regions and countries, determines the inconvenience to register these forms of accommodation.

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Giovanni Ruggieri

This consideration suggests a first kind of action directed to demonstrate the convenience of registering this type of tourism giving more opportunity to the local businesses supported by the policies of local authorities. A second action could be helping the local population to manage actual rental houses following new and precise tourism models related to the international market demand. The application of these models could lead owners of unutilized homes to follow the tourist market, consequently increasing tourism flows and reaching a higher level of bed capacity. To achieve this we firmly believe that a local intermediary figure is necessary to collect, to specialize and to manage these types of rental offers following the tourism market rules. Finally to develop second homes market in the Archipelago we do not have to lose focus on the relationality aspect, central to the tourist’s needs. It means that private homes are able, if well managed from local people, to offer a “human touch” to the tourist experience. Further research could investigate on the repeat tourism business deriving from this rental house market.

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Bibliography Aguilò E, Alegre J, Sard M. 2005. The persistence of the sun and sand tourism model. Tourism Management 26: 219–231. Becheri E. 1994. Domanda turistica attuale e potenziale. Competitività e strategie. Alcune riflessioni e generalizzazioni. Rivista italiana di economia demografia e statistica, 1-2: 143–168. Rome. Bethencourt M, Diaz F, Alvarez JA, Gonzales O. 2002. The segmentation of the Canarian tourism market with regard to expenditure: an empirical study of La Palma. ERSA conference papers, European Regional Science Association. Briguglio L. 1995. Small Island Developing States and Their Economic Vulnerability. World Development Vol. 23, No. 9: 1615-1632, Elsevier Science Ltd. Butler RW. 1980. The concept of tourist area cycle of evolution. Canadian Geographer 24 (1): 5–12 . Calzaroni M. 2000b. The Exaustiveness of Production Estimates: New Concepts and Methodologies”, Paper presented at the International Conference of Establish-ment Surveys II: Buffalo. Candela G, Figini P, Scorcu A. 2004. The part tariff as a policy tool for managing destinations. Paper presented at First international conference on tourism economics. Palma de Mallorca, 28–29 May, 2004. De Cantis S, Giambalvo O, Parroco AM, Tomaselli V. 2005. Turismo sommerso e qualità dei dati: identificazione e controllo degli errori di misurazione nell’indagine sulle Isole Eolie. In Isole Eolie. Quanto turismo?! Parroco AM, Vaccina F. (eds). Cluep: Padova. European Commission. 1999.Commission Decision of 9 December 1998 on the procedures for implementing Council Directive 65/57/EC on the collection of statistical information in the field of tourism. Official Journal of the European Communities; 1999/34/EC of 15.01.1999. Garcia C, Servera J. 2003. Impacts of tourism development on water demand and beach degradation on the island of Mallorca (Spain). Geografiska Annaler 85 A (3-4): 287–300. McElroy JL, Albuquerque K. 1998 Tourism penetration index in small carribbean islands. Annual of tourism research, vol 25, No. 1: 145–168; Elsevier Science Ltd. McElroy JL. 2003. Tourism development in small islands across the world, Geografiska Annaler – 85 B (4): 231–24. Parroco AM, Vaccina F. (eds). 2005. Isole Eolie. Quanto turismo?!, Cluep: Padova. Pigliaru F. 1996. Economia del Turismo: note su crescita qualità ambientale e sostenibilità. Università di Cagliari e Crenos, 1996/12. Riley M. 1995. Tourism development under close control: the case of Falkland Islands. Tourism Management, Vol. 16, No. 6: 471–474. Elsevier Science Ltd. Sharpley R. 2000b. The influence of the accommodation sector on tourism development: lessons from Cyprus. International Journal of Hospitality Management 19 (3): 275–293. Tallinucci V. E Testa M. (2006) Marketing per le isole: strategie di comunicazione e di marketing per l’isola d’Elba e nell’Arcipelago Toscano. Franco Angeli: Milano. Taylor JE. 2001. Tourism to the Cook Island. Retrospective and prospective. Cornell Hotel and Restaurant Administration Quarterly.2001; 42: 70–81. Twining-Ward L, Butler RW. 2001. Development and use of indicators of sustainable tourism in small island states. Paper presented at the TRC Meeting, Interlaken: March 23–26, 2001.

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Developments in real estate and tourism in Alpine winter sports destinations: The case of the Styrian ski resort Schladming

Otto Bammer, Patrick Hainzl, Michael Mair & Daniela Wagner

Abstract Real estate as well as tourism industry plays a vital role in Austria’s economy. Siterelated various independences have an enormous impact on a destinations’ development. The purpose of this study is to identify and examine factors that influence real estate prices and the development of tourism in Alpine winter sports destinations. Specifically, this study analyzes the development of Tourism and real estate in Styrian ski resort Schladming in the last fifteen years. The results demonstrate that both tourism and real estate market are affected by nearly the same factors. Internal drivers are permanent investments in (tourist) infrastructure. External drivers are guest structure modifications and threats by climate changes. With the high concentration in one economic sector, both tourism and real estate show a lack of innovation. Moreover this study could be seen as intervention to encourage change and development. Keywords: Tourism development, real estate development, real estate prices, winter sports destinations, drivers of development

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Otto Bammer, Patrick Hainzl, Michael Mair, Daniela Wagner

1 Introduction Both the real estate and tourism industries play a significant role in the Austrian economy (Gruber & Hromas, 2007; Czerny & Weingärtler, 2007). Real estate locations develop in parallel to regional economic development cycles and only to a limited extent in parallel to the business cycle of the national economy (Cerny & Wagner, 2003). Regions are increasingly dependent on industry and corporate cycles. One of the key elements in the analysis of macro-locations is the situation and development of the region in terms of social and economic structure. This is because the criterion is not the supply or demand for space, but economic development based on the factors which characterize the economy of the region (Muncke & Rybak, 2006). In real estate location analysis, a distinction is drawn between “hard” and “soft” location factors (Schulte et al. 2005). In spatial terms, a distinction is drawn between the macro and micro location (Muncke & Rybak, 2006).

Figure 1: Structure of real estate location analyses Source: adapted from Muncke & Rybak, 2006

In this context, it is necessary to pay special attention to price elasticity, with a clear focus on the three central factors of the market mechanism: supply, demand and prices (Muncke & Rybak, 2006). Developments in tourism are influenced by a variety of factors. Traditional system theory approaches assume that many networked links and subsystems exist within a tourism system, and that a tourism product is composed of many partial services (Bieger, 2004, borrowing from Kaspar, 1996). The principles of modern system theory serve to incorporate the element of dynamics in the system of tourism, which is influenced and altered by certain events (Bieger, 2004).

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Tourism development depends on whether a location is able to meet the visitors’ needs. The factors which influence this ability include the original or basic offer (i.e., natural and geographical situation, historical/cultural situation, socio-cultural conditions, general infrastructure) and the derived offer (commercial tourism offers, public tourism offers, tourist information). Under the heading of locationpromoting factors in tourism, measures to restrict traffic and transport, housing/settlement policies and morphological harmony in the town’s profile are gaining increasing significance (Luft, 2007). Austria’s tourism destinations in the Alpine region are in a state of upheaval. Skiing and winter sports tourism has undergone an enormous transformation. Changes in visitor behavior, lower airline ticket prices and the resulting increase in globalization (Hartl, 2002) as well as high price transparency and intensified competition from new resorts have posed new challenges for Alpine tourism destinations (Bieger, 2004). One of the main disadvantages in Alpine tourism is the compact structure of the hotel industry and the frequently insufficient size of hotels. From a business standpoint, the development of clearly distinguished tourism destinations where key parts of tourism offerings are controlled by a single economic actor is being propagated (Hartl, 2002). This would drastically reduce the number of ski areas. It also raises the question of whether this scope of consideration is sufficient, as economic and regional, social, cultural and ecological perspectives are neglected (Bätzing, 2002 and Klein, 2007). From an ecological perspective, climate change is forcing tourism destinations to take action. Recent studies on climate change paint a bleak picture of the future of winter sports destinations in the Alpine region. In recent years, warming in this region has been approximately three times as high as the worldwide average. According to climate models, even greater changes can be expected in the coming decades, including a decrease in snow cover at lower altitudes (Agrawala, 2007). Pröbstl (2007) puts these negative predictions into perspective and explains that such blanket statements have an unfavorable impact on winter sports destinations. Using regionally adapted information, it is possible to attain results which differ from those generalized negative statements in many ways. Changes in the natural surroundings have an impact on the attractiveness of tourism destinations and lead to changes in the value of hotel properties and second apartments (Wegelin, 2006).

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2 Methods This study focuses on Schladming, a popular ski resort in Austria. The municipality of Schladming (745 m above sea level) is located in the Liezen district in the province of Styria. Geographically, Schladming covers an area of 10.3 sqkm at the confluence of the Talbach and Enns Rivers in the Upper Ennstal Valley. The town is skirted by the Dachstein Mountains to the north and the Niedere Tauern mountains to the south. Schladming has a population of just more than 4,500 (Municipality of Schladming, 2008). The development of tourism in Schladming began in the early 1970s, and in 1982 the town hosted the Alpine World Ski Championships. Schladming and Ramsau are among the leading tourist destinations in the district of Liezen (Statistics Austria, 2007). The purpose of this study is to identify and examine those factors which influence real estate prices and the development of tourism at winter sports destinations. This research project involves a qualitative study which employs a retrospective research design as well as triangulation and was conducted in three stages between 2007 and 2008: group discussion, field interviews and analysis of structural data and artifacts. Triangulation can be regarded as a systematic expansion and completion of potential insights. It not only serves to validate the results and methods applied, but also increases the breadth, depth and consistency of the methodological approach (Flick 2007, with reference to Denzin & Lincoln, 2000). The retrospective research design makes it possible to analyze specific events and processes on the basis of their significance for individual or collective developments over time. Bohnsack (2005) pointed out that group discussion is used when the methodological significance of interaction, discourse and group processes for the formation of opinions as well as orientation and significance patterns are based on an underlying theoretical model. Participants were asked to discuss in detail which influencing factors and processes were decisive in the development of Schladming as a destination during the study period (1992–2007). The discussion group included two participants from local tourism businesses, two members of local tourism institutions, two representatives from the real estate industry and two representatives from the municipal government. A total of three rounds of discussions were carried out. The discussions focused on influencing factors from the tourism and real estate industries as well as other influencing factors. The results were combined to form a factor model and included in the interviews as a retrospective framework.

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A total of 20 narrative interviews were carried out. In order to be included in the sample, interviewees had to have an interest in the topic and to have made Schladming the focus of their vital and/or professional interests for the last 15 years or more. The objective of the narrative interviews was to compress, reflect on and complement the results attained in the group discussion. The interviewees were asked to express their personal views in the question “From your perspective, what key factors and processes have been decisive in Schladming’s development in the last 15 years (1992–2007)?”. The narrative interview technique does not involve confronting the interviewee with standardized questions; instead, the objective is to encourage the interviewee to speak freely (Mayring, 2002). Any agreement with factors identified in the discussion group was noted during the interview. Factors not explicitly mentioned by the interviewees were queried directly at the end of the interview (Mayring, 2002). During the analysis stage, the interviews were transcribed and the following categories were created on the basis of the statements made: “Tourism-related influencing factors and processes” cluster: Summer/winter offerings, accommodations/beds, local residents/visitors, accommodation markets, tourism organizations, tourism infrastructure/traffic and transport. “Real estate-related influencing factors and processes” cluster: Private real estate, commercial real estate, town profile/development “Other influencing factors and processes” cluster: Education, local politics, environment/quality of life/climate, economic development/population In parallel to the interviews, structural data and artifact analysis was carried out. The analysis of structural data involves an approach based on formal, external characteristics. Such characteristics provide static images with regard to internal or external framework data and make it possible to compare data collected in interviews with independent data and to analyze distortions and their possible causes (Froschauer & Lueger, 2006). Artifacts refer to the material products of human activity and provide the analyst with information on social relations and societal conditions (Froschauer & Lueger, 2006).

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Otto Bammer, Patrick Hainzl, Michael Mair, Daniela Wagner

In the analysis of real estate prices, it was not possible to fully survey all categories of real estate due to a lack of available data. Data on the development of condominium prices in Schladming (new as well as previously inhabited apartments) during the study period (1992 to 2007) was analyzed. As a methodological complement, comparative price data was derived from the annual real estate price indicators published for the district of Liezen (Vienna Chamber of Commerce, 2000-2007). These real estate price indicators are based on annual market surveys which the relevant trade association carries out among its member businesses (approximately 7,500 throughout Austria). The following property categories are included in the survey: Residential real estate: building lots for detached family houses, new and previously inhabited condominiums, semi-detached houses, single-family houses, rental apartments not subject to legal rent control. Commercial real estate: Lots for the establishment of new businesses, rent levels for office space, rent levels for commercial space. However, this data on the district of Liezen is only available from 2000 onward.

3 Results The results reveal the significance of the following categories for the development of Schladming: (1) Summer / Winter offerings, (2) Accommodations / beds, (3) Infrastructure (tourism infrastructure / transportation), (4) Source markets, (5) Local residents/visitors, (6) Local politics, (7) Tourism organizations, (8) Town profile / development, (9) Real estate (commercial / private), (10) Economic development / population, (11) Education, (12) Environment / quality of life / climate.

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Developments in real estate and tourism in Alpine winter sports destinations

Summer / Winter offerings Winter 1973 1.World Cup Race

1982 Ski WC

Summer 1991 1.Race US Pro Tour

vor 1992 1992

Special Olympics

Alpine Juniors WC

2. Race US Pro Tour 3. Race US Pro Tour 4. Race US Pro Tour

1993 1994 1995

Night Race

1996

Night Race

1997

Night Race

1998

Night Race

1999

Night Race

2000

Night Race

2001

Night Race

2002

Night Race

2003

Night Race

2004

Night Race

Night Race

WASBE Festival 1. MID Europe 2. MID Europe 3. MID Europe 4. MID Europe 5. MID Europe 6. MID Europe 7. MID Europe

Planai Classic Planai Classic Planai Classic Planai Classic Planai Classic Planai Classic Planai Classic Planai Classic

Mountainbike WC

2005

8. MID Europe

Planai Classic

Mountainbike WC

2006

9. MID Europe

Planai Classic

Mountainbike WC

2007

10. MID Europe

Planai Classic

Mountainbike WC

Night Race

Wild Water Hiking Adventure Wild Water Hiking Hiking WC Adventure Wild Water Hiking Adventure

Figure 2: Main events from 1992 to 2007 Source: authors’ survey, 2008

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Otto Bammer, Patrick Hainzl, Michael Mair, Daniela Wagner

The development of tourism in Schladming began with the commercial development of the mountains from 1973 onward. The initial trigger for continuing development in tourism was the Alpine Ski World Championships in 1982. In the respondents’ view, hosting winter sporting events, in particular the "Night Race" which has been carried out each year since 1996, the men’s slalom event in the Alpine Ski World Cup and the Special Olympics in 1993, has had the greatest impact on the development of Schladming as a tourist destination. These events’ contribution to enhancing Schladming’s profile and image has been decisive in this context.

4

Accommodations / Beds Guest Capacity (number of beds) by category

1200

1000

Number of beds

800

600

400

200

0 1992

1993

1994

1995

4/5-Star Commercial holiday apts./houses Youth hostels/recreation homes

1996

1997

1998

1999

2000

2001

3-Star Private holiday apts./houses Campground

2002

2003

2004

2005

2006

2007

2/1-Star Private rooms / farm holidays

Figure 3: Number of beds by category Source: Schladming-Rohrmoos Tourism Association, 2008

In qualitative terms, Schladming’s capacity is too low in light of the Austrian trend toward high-quality tourism (Statistics Austria, 2008). In quantitative terms, the interviewees stated that the town’s capacity is sufficient. Existing accommodation facilities have continuously invested in increasing their quality over the last three to five years. However, there is a lack of investors for new projects in this quality category.

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4.1 Infrastructure The Alpine Ski World Championships in 1982 also represented the initial trigger for the development of tourism infrastructure in Schladming. According to the interviewees, further development in this area was driven by the local lift operator, not by local hotels. The merger with the neighboring ski areas to form a fourmountain ski network and the takeover of a nearby ski area on the Dachstein glacier are considered to have been strategically important steps. Investments in lifts and snowmaking equipment have also served to secure the quality of Schladming’s tourism infrastructure. The available leisure activities benefit visitors and local residents alike. Schladming’s geographical location in a valley as well as the town’s scarce property resources has exacerbated the negative effects of increasing traffic volumes. Noise, harmful emissions and heavy traffic have increased markedly over the years.

4.2 Source markets The interviewees indicated that Schladming’s classic source markets such as Germany and the Netherlands have lost significance, although they are still considered the most important. With the opening up of countries to the east of Austria, new groups of visitors have been attracted to Schladming. From a business standpoint, this is considered a positive development; nevertheless, there are still fears that visitors from Eastern Europe will reach excessively high numbers and push out other target groups. The need to accommodate new requirements and expectations among guests as well as language problems and clichéd prejudices also increase the difficulties of dealing with visitors from Eastern Europe and Russia.

4.3 Local residents / Visitors In their self-image, the local residents explicitly emphasize their hospitality and friendliness toward visitors. However, not everyone sees a balanced and healthy development in the interaction between local residents and visitors. According to the interviewees, the reasons for the increasing reticence can be found in the tendency toward a more quantitative orientation in tourism at the expense of tradition and identity. More international target groups and the resulting communication problems have fostered more differentiated relationships to visitors. Unlike visitors, local residents have to bear price increases throughout the year. In the interviewees’ opinion, both the local government and tourism industry decision-makers are responsible for creating a more balanced relationship by means of increased internal marketing.

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4.4

Local politics Municipality of Schladming Election Results 1995-2000-2005 (seats)

60,00% 50,00% 40,00%

1990 1995

30,00%

2000 2005

20,00% 10,00% 0,00% People' Party

Social Democrats

Freedom Party

Green Party

Local Party

Figure 4: Political distribution Source: Municipality of Schladming, 1995-2005

V ote r par ticipation 1990 to 2005 0,88 0,86 0,84 0,82 0,8 0,78 0,76 0,74 0,72 0,7 0,68 1990

1995

Figure 5: Voter participation Source: Municipality of Schladming, 1995-2005

140

2000

2005

Developments in real estate and tourism in Alpine winter sports destinations

Schladming’s local politicians are clearly committed to the town’s orientation toward tourism. From the interviewees’ perspective, the political climate is consensus-oriented, geared toward stability and characterized by few changes. The conservative majority has prevailed in Schladming’s local government for approximately 30 years now. In the municipal council elections in 2005, a generation change took place within the conservative camp. In local political activities, small-scale regional thinking has become increasingly prevalent.

4.5 Tourism organizations Not unlike Schladming’s local government, local tourism association structures are also perceived as fairly static and stable. It was not until the individual associations in Schladming and Rohrmoos merged into a joint association and marketed the ski area through the Schladming-Dachstein marketing association that the efficiency of tourism structures increased. Schladming’s position as a winter sports destination and the events held there have also served to enhance the destination’s profile and image.

4.6 Town profile/development In 1993, nearly 74% of the population supported the transformation of Schladming’s main square into a pedestrian zone (Municipality of Schladming, 1993). From the interviewees’ perspective, the mix of industries is too heavily oriented toward tourism. Grocery retailers have moved their business premises to the edges of town. The frequency of visitor traffic – both guests and local residents – in the area around the main square has decreased. This low traffic and the high rent levels in that area have repeatedly left commercial spaces empty. For the sake of comparison, it is important to note that rent levels for commercial space have been declining at the district level since 2003 (Vienna Chamber of Commerce, 2000-2007).

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4.7

Real estate Development of real estate prices in the district of Liezen (excellent location, very well-appointed properties) 2.200,00

Purchase price in € per m² of usabl

2.000,00

1.800,00 New condominiums Previously inhabited condominiums Semi-detached houses

1.600,00

Single-family houses 1.400,00

1.200,00

1.000,00 2000

2001

2002

2003

2004

2005

2006

2007

Calendar years

Figure 6: Development of residential real estate prices in the Liezen district Source: Vienna Chamber of Commerce, 2000-2007

With the exception of single-family houses, a buoyant upward trend characterized all categories of residential real estate from 2002, while prices for previously inhabited condominiums began to decline from that year onward. New condominiums and semi-detached houses have seen sustained and even increasing price levels. In contrast, previously inhabited condominiums have lost in value since 2004. Singlefamily houses only began to show noticeable increases in value in 2004, but then began to decline again in 2006. Building lots for single-family houses saw prices increase starting in 2002, and their price level has remained fairly constant since 2004. Commercial lot prices shot up between 2003 and 2004, but they have now even fallen below their level from the year 2000. Rent levels for rented apartments have stagnated since the year 2000, whereas office rent levels have recorded a moderate increase. Rent levels for commercial space have been declining since 2003.

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Developments in real estate and tourism in Alpine winter sports destinations

The development of condominium prices (both new and previously inhabited) was compared to the corresponding development throughout the district of Liezen. For reasons related to data protection law regarding the transactions cited for Schladming, no absolute prices are indicated; the absolute value (average price) of very well-appointed condominiums at excellent locations in Schladming in 1992 was set to 1.00, and the ensuing absolute prices were placed in relation to that point of reference. Condominium prices (Liezen overall and Schladming) 2,50

Relative Price development

2,00

1,50

New condominiums (Schladming) Previously inhabited condominiums (Schladming) New condominiums (Liezen)

1,00

Previously inhabited condominiums (Liezen)

0,50

0,00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Calendar years

Figure 7: Prices of condominiums in Schladming and throughout the Liezen district Source: authors’ survey, 2008

Here it becomes clear that the prices for both new and previously inhabited condominiums in Schladming have been above the price level for the Liezen district since 2002 or longer. While the price level for new condominiums in Schladming has been increasing noticeably since 2004, the reference values for the entire Liezen district have apparently remained unchanged since that time. In the case of previously inhabited condominiums in Schladming, the price increase has been markedly smaller than in the case of new condominiums, while the reference prices for previously inhabited condominiums throughout the Liezen district have clearly been declining since 2004. In general, therefore, we can conclude that the market for condominiums in Schladming exhibits higher price levels than in the overall district of Liezen.

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The interviewees indicated that commercial real estate prices have increased sharply in recent years. This development is attributed to the scarce property resources in the municipality and increased pressure from the hotel sector. Speculations regarding a World Cup bid were also cited as a reason for increased prices. Local residents are taking advantage of the opportunity to sell real estate at a profit. Only little intervention is performed to control property prices. In private real estate, the interviewees indicated that the available living space has increased, while room for improvement is identified in subsidized housing. For the acquisition and construction of condominiums or single-family houses, there are only limited offers at very high prices; this has brought about increased migration to more favorably priced municipalities in the area. The high real estate prices are connected to developments in tourism infrastructure. An increase has been observed in second residences in Schladming. These residences are usually only used for four to six weeks per year, thus contributing little to the local economy.

4.8 Economic development/population The municipality of Schladming had more than 425 employers and 2,786 employees in 2001. Compared to 1991, this represents an increase of 16.8% in the number of employers and 13.6% in the number of employees. Most of the businesses are in the fields of retail commerce and motor vehicle repair, with 103 employers and 5.16 employees on average (Statistics Austria, 2008). In 2001, the resident population of Schladming came to 4,570 inhabitants, up 4.4% compared to 1991. Between 2004 and 2006, Schladming’s population decreased by 1.1% (Styrian Provincial Government, 2008). The interviewees see tourism as the main driver of the economy in Schladming. The tourist attractions on offer have been expanded constantly and well received, which has brought about economic growth and increasing wealth. This strong focus on tourism has resulted in a situation where professionals with high qualifications or academic degrees from other fields are unable to find work and thus move to other areas. This development has not been offset by the arrival of new residents in recent years. The general income situation is assessed positively over the survey period. The various areas of the local economy are predominantly dependent on the winter season, which is especially problematic for retail commerce given a high season of only three to four months.

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4.9 Education The town of Schladming has well-structured educational offerings with regard to primary and secondary schools. In the segment of vocational secondary schools, Schladming also has a ski trade school and has offered a preparatory course for secondary school leaving exams since 1996. As regards adult education, various courses are offered at the local institute of continuing education (Municipality of Schladming, 2008). The interviewees commented favorably on primary and secondary schooling in Schladming. The lack of structures in general and vocational secondary school forms as well as the sparse offerings in the field of adult education were assessed as weaknesses. The lack of development in educational structures and the resulting low level of innovation are attributed to the town’s heavy focus on tourism.

4.10 Environment / quality of life / climate In the interviewees’ opinion, Schladming enjoys a very high quality of life, which at the same time is largely taken for granted. These standards are perceived to be compromised by the increasing number of visitors and increased noise pollution due to the more intensive use of snowmaking equipment. All of the interviewees have recognized changes in the climate. While some dismiss this as excessive pessimism, others see the effects of climate change (e.g., higher temperatures and greater fluctuations in snowfall) on tourism development and especially the need for more artificial snow. However, Schladming’s geographically favorable location and its local climate conditions must be accounted for in the current discussion on climate change.

5 Conclusion The natural surroundings of Schladming are hardly considered a development factor by local residents. Differing responses arise only in problem areas (noise from snowmaking equipment, traffic problems in town). Depending on their relationship to the tourism industry, local residents assess the situation as questionable, and in other cases they dismiss problems as excessively pessimistic. The development of tourism offerings began with the commercial development of the mountains for Alpine sports. Subsequently, major winter events helped enhance the region’s image. The development of summertime offerings has only begun in recent years, and the proven strategy of hosting major events has also been applied in this area.

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There is general consensus that the tourism industry in Schladming mainly lacks high-quality accommodations, and that occupancy and capacity utilization are too low. Specific investments to increase the quality of accommodations are currently being planned. The "Hohenhaustenne", an event venue opened in 2007 with a capacity of 1,500 guests, was hardly mentioned by the interviewees. The predominant target image appears to be one of visitors interested in quality, and the attractions offered tend to be large-scale events. Due to the opening of markets to the east and the economic situation in Germany, Schladming’s source markets have changed over the last ten years. With a combined share of over 70%, however, Austria and Germany account for the majority of visitors to Schladming. The increased number of visitors from Eastern Europe – especially from Russia – and the increased number of visitors from Great Britain is irritating to many locals in Schladming. In terms of language as well as tourism interests, these new visitors make different demands compared to the usual German visitors. Existing strategies are not sufficient in order to overcome the current challenges in a sustainable manner, but new paths have not yet been found. The political conditions in Schladming are highly consensus-oriented, very stable and not particularly dynamic. There is agreement on the fact that tourism is the town’s mainstay and many actions are oriented toward tourism-related needs. Other business areas have hardly developed, and no activity can be observed in new business sectors. The average capacity utilization of Schladming’s tourism industry is barely over 30%. In this context, the losers are small enterprises in tourism as well as retail commerce and trades. The development of Schladming’s main square appears to be symptomatic of these circumstances. The pedestrian zone, which was supported by a vast majority of local residents, now suffers from a lack of visitor traffic. The shopping facilities for local residents have moved to the edge of town, and tourism demand is too low to justify sustained business activity. As mentioned above, only data on the development of condominium prices in Schladming was made available. Compared to the corresponding values for the overall district of Liezen, this data shows that the market for condominiums in Schladming enjoys substantially higher price levels and obviously holds further potential for growth than the rest of the district.

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The number of holiday apartments and houses in Schladming has also seen substantial growth, which is probably also due to the fact that short-term rentals to tourists – even with occupancy for only a small part of the year – are generally more profitable from a real estate business standpoint than long-term rentals which satisfy primary housing needs. The population of Schladming is decreasing. This can be explained by the departure of local residents who can not afford or do not wish to pay the price for primary housing in Schladming. In addition, it is very difficult to find employment in economic sectors outside of the tourism business. During the study period, it was practically impossible to detect any innovation in the real estate business (i.e., the development of usage forms other than tourism). Due to the favorable situation with regard to income from tourism, there has probably not been sufficient reason for such innovations. Although it is beyond the scope of this study, in the long term it cannot be ruled out that retaining this high level of tourism specialization without developing alternative scenarios may become problematic if the currently favorable (but uncontrollable) general conditions become unfavorable at some point in the future. Schladming’s tourism organizations are very active and reflect the political conditions in the town. Their impact on development could not be identified explicitly. However, the role of the local lift operator was highlighted repeatedly as the driving force behind many developments. Local education is almost exclusively in the primary and secondary segments, and there is no general secondary school. The local institute of continuing education provides adult education courses. However, continuing education is not regarded as a strategic development factor. In summary, we can state that the main internal driver of development in Schladming is the local lift operator, and changes in visitor types and the threat of climate change could be identified as external factors influencing development. In the course of the development workshop to be held in cooperation with the local government of Schladming, internal marketing and the innovation climate will be pointed out as key issues. The willingness to innovate can be increased by observing external challenges more closely and by allowing internal contradictions. This study can also be regarded as a form of intervention which may trigger changes. In particular, it is necessary to rethink the processes involved in generating innovations (Zollo & Winter 2002). Sustainable development should also be able to depart from the usual strategies and not just produce “more of the same”.

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Bibliography Agrawala, S. (2007) Climate Change in the European Alps: Adapting Winter Tourism and Natural Hazards Management, OECD Study. Bätzing, W. (2002) Der Stellenwert des Tourismus in den Alpen In: Luger, K. and Rest, F. (2002) Alpentourismus, Innsbruck: Studien Verlag. Bieger, T. (2004) Tourismuslehre – ein Grundriss, Bern, Wien: Haupt Verlag. Bohnsack, R. (2007) Rekonstruktive Sozialforschung, Opladen: Budrich Verlag. Cerny, M. and Wagner, K. (2003) Strukturelle Einflussfaktoren auf den österreichischen Wohnungs- und Immobilienmarkt. Berichte und Studien, 3, Wien: Österreichische Nationalbank. Czerny, M. and Weingärtler, M. (2007) Volkswirtschaftliche Bedeutung der baukulturellen Qualifizierung, Zahlen/Daten/Fakten. In: Österreichischer Baukulturreport 2006, Heft 5, 3–4 Gruber, R. and Hromas, B. (2007) Tourismus und Baukultur. In: Österreichischer Baukulturreport 2006, Heft 5, 38–39. Flick, U. (2007) Qualitative Sozialforschung, Hamburg: Rowohlt Verlag. Froschauer, U. and Lueger, M. (2006) Qualitative Organisationsdiagnose als Grundlage für Interventionen und als Intervention, In: Frank, H. (2006) Corporate Entrepreneurship, Wien: Facultas Verlag. Hartl, F. (2002) Der Tourismus im Wandel – schaffen wir den Turn-Around? In: Luger, K. and Rest, F. (2002) Alpentourismus, Innsbruck: Studien Verlag. Klein, A. (2007) Klimawandel und Tourismus in der Europäischen Union, Saarbrücken: VDM Verlag. Statistics Styria (2007) Gemeinde Schladming, Graz: Land Steiermark, http://www.verwaltung.steiermark.at/cms/dokumente/10058471_1523051/ e8ab0173/61242.xls. Luft, H. (2007) Destination Management in Theorie & Praxis, Meßkirch: Gmeiner Verlag. Mayring, P. (2002) Qualitative Sozialforschung, Weinheim und Basel: Beltz Verlag. Muncke, G. and Rybak L. (2006) Immobilienzyklen und Managementpraxis – Immobilienanalyse. In: Wernecke, M. and Rottke, N. Praxishandbuch Immobilienzyklen, Köln: Rudolf Müller Verlag. Pröbstl, U. (2007)Klimawandel: Zukunft und Herausforderung für den Tourismus in: Ländlicher Raum, Wien: Online-Fachzeitschrift des Bundesministeriums für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft. Schulte, K. W.; Bone-Winkel, S. and Thomas, M. ( 2005): Handbuch Immobilien-Investition, Köln: Rudolf Müller Verlag. Town of Schladming (1991–2007), Schladminger Stadtnachrichten, Schladming. Statistics Austria (2007): Tourismus in Österreich, Wien. Statistics Austria (2007) Ein Blick auf die Gemeinde Schlaming, Wien, http://www.statistik.at/blickgem/blick1/g61242.pdf. Statistik Austria (2007) Ein Blick auf die Gemeinde Schlaming, Wien, http://www.statistik.at/blickgem/az1/g61242.pdf. Schladming-Rohrmoos Tourism Association (2007): Businessplan 2007–2011, Schladming. Wegelin, J. (2006) Will hier wirklich noch jemand Ski fahren? In: CASH, 11/06. Vienna Chamber of Commerce, Trade Association for Real Estate and Asset Management (2000–2007), Immobilienpreisspiegel, Vienna: WKO. Zollo, M. and Winter, S. (2002): Deliberate Learning and the Evolution of Dynamic Capabilities, in Organization Science, Vol.13.

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The socio-economic and environmental impacts of second home tourism: The South Pacific Coast of Nicaragua example

Xavier Matteucci, Dagmar Lund-Durlacher & Matthias Beyer

Abstract Attractive coastal regions of Central and South America have recently experienced a rapid growth of second home developments. Informed by the experiences of Europe and the Americas, this paper examines the socio-economic and environmental impacts of second homes on the South Pacific Coast of Nicaragua. The main impacts include conflicts with local and indigenous communities over land use and ownership, seasonal and low-income employment generation, an increased burden of municipal budget to provide public infrastructure, and environmental degradation. It is argued that the second home tourism sector, strongly driven by private real estate investors, fails to generate tourism activities which are expected to sustain community development. Furthermore, this study indicates that municipalities concentrating on the second home tourism segment may deprive access to resources to other forms of tourism activities. Keywords: Second homes, impacts, tourism development, developing economies

1 Introduction Over the past several decades, an increasing demand for holiday homes has blossomed throughout southern regions of Europe and the Americas. Based on the assumed benefits of tourism, public authorities – accompanied by private stakeholders – have seen this phenomenon as a major contributor to regions’ economies. Second home tourism has been an issue within tourism research since the early 1970s. At that time, second homes developed for tourists began to spread on the Spanish and other Mediterranean coastal regions. Second home tourism, a new form of tourism, appeared and flourished due to the development of the welfare state, which was characterized by more free time, earlier retirement and more generous pensions (Aledo and Mazón, 2004).

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Despite the growing importance of second home tourism worldwide, one of the main loopholes in terms of tourism is the severe lack of information relating to this segment. However, some figures are parsimoniously available, which help estimating the extent of the phenomenon in some specific areas. For instance, in Spain, non-residents purchased 90,000 homes in 2002 with a value of 5.676 million Euros, a 16% increase from the previous year. Of those tourists purchasing homes, nearly half were British and 28% were German (www.andalucia.com). Around 75% of the accommodation capacities for tourists in Spanish coastal areas (including Balearic and Canary Islands) caters to the second home tourism sector, while only 25% consists of hotel accommodation (Exceltur, 2005). In France, second homes for tourists accounted for about one-tenth of all houses in 2003, about 3 million houses in total, – the majority (7.9%) of those owned by British nationals (Calzada, et al., 2004). In the Provence-Alpes-Côte d’Azur region, the second home segment is currently estimated to be the first accommodation type by far and occupies two-thirds of the entire lodging capacity (Insee, 2007). However, many studies on the socio-economic impacts of second home tourism on the host communities address the positive and negative effects of such developments (Müller, 2001; Mateu I Lladó, 2003; Bevan and Rhodes, 2005; Hiernaux, 2005 and Visser, 2004a, 2004b and 2006). It is therefore necessary to investigate whether second home tourism is a catalyst for tourism development in peripheral areas. In other words, does second home tourism have less of an impact on the environment and to the host community than conventional tourism? The purpose of this paper is to discuss the threats and opportunities associated with the development of the second home tourism sector for the host communities in developing countries. The main focus is set on the potential socio-economic and ecological impacts, as exemplified in the case study of Rivas, a Department in the southern part of Nicaragua.

2 Definitions Previous studies provide varied definitions of second home tourism (De Wilde, 1977; Marsden, 1977; Goodall, 1987; Mellett, 2003 cited in Visser, 2004a), which apparently fail to be widely and commonly embraced by academics and other tourism bodies. However, second home tourism, also frequently referred to as residential tourism or holiday homes, entails the usually accepted notions of long-term stay, occasional residence and property ownership. Therefore, second home tourism can be understood as an economic activity that is dedicated to the urbanization, construction and sale of houses that make up the holiday home sector whose proprietors or tenants spend the summer or reside intermittently outside their habitual place of residence.

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Within this frame, closed residential communities - whether gated or not - are also considered. Gated communities, particularly abundant in North America, have been described by social scientists as a new trend of residential development, both a physical and obvious expression of post-industrial societal changes. Le Goix (2003) commented that “gated communities represent a new form of urbanism where public space is privatized”. In the scientific Spanish literature, Aledo (2008) presents this new form of residential development as the New Residential Tourism (Nuevo Turismo Residencial). He describes it as a new touristic “bubble” where the allinclusive resort concept is applied to second home tourism. In the Spanish context, Aledo differentiates this new form of residential tourism from its former one by the abolition of nature to a new touristic territory where nature is commercially tailored for tourists (referred in Spanish as natura turistizada). Finally, Torres Bernier (2003) suggests that the term residential tourism entails a contradiction in itself, since, by definition, a resident is not a tourist. One can further critically point out that this form of tourism consists of, by essence, little tourism, but is an extensive real estate activity. Such an extensive activity may affect a destination image and harm other forms of tourism developments. In any case, a common characteristic of holiday home tourism is the search for the ideal spot, which usually translates into sun, sea and privacy/security to wealthy city dwellers mainly from northern regions of the industrialised world. This has brought private investors not only to urban areas, but also to remote villages (Pessoa Silva and Lisboa Nobre, 2007; Aledo 2008) with the claim that tourism will benefit all classes of the host communities through the multiplier effect. Despite the obvious positive economic impact of tourism, holiday homes can have significant implications on local communities.

3 Methodology The article includes an academic reflection on the experiences with second home tourism in Europe and the Americas, as well as an analysis of the present situation of residential tourism in the South Pacific Coast of Nicaragua. Besides an extensive review of Spanish, French and English academic literature, secondary data from the Rivas region were examined. Nicaraguan press releases from the main two national papers, namely La Prensa and El Nuevo Diario, were scanned to add congruence to the local debates and opinions collected. In-depth, semi-structured interviews and participant observation were used to collect additional qualitative data. Twenty-one decision makers and tourism officials were interviewed in the months of January and February 2007. The interviewees were representatives from the local government, ministry of tourism and local tourism industry.

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Themes discussed during the interviews include: repondents’ knowledge about second home tourism (key facts, investors and second homeowners’ characteristics), real estate market and construction regulations, expected socio-economic and environmental impacts, existing and/or necessary instruments for good governance, as well as expected implications of future second home developments. Furthermore, on-site observation of selected development projects, which were either in a construction phase or were already completed, took place over the same period in the municipalities of Rivas, San Juan del Sur and Tola, Nicaragua. The following section presents the empirical realities of the case study area. To support our findings, both the case study and past scientific studies on second home tourism have been synthesized under one section.

4 Context of research The municipalities of San Juan del Sur and Tola are located in the department of Rivas, in the far southwest of Nicaragua. Rivas borders Lake Nicaragua (the 10th largest lake in the world and also home of the only freshwater sharks) and the Pacific Ocean. Its northern boundary is Rio Ochomogo, and its southern border is Costa Rica. The region of Rivas has a population of about 167,000 and its economy is mainly based on tourism, cattle ranching and agriculture. Despite a recent boom of tourism activities in the region, unemployment is still high. According to local figures, up to 28% of the local population of Tola immigrate to Costa Rica each year in search of better job opportunities (La Prensa, February 25th 2005). During the last few years, both foreign and domestic investments have fuelled large-scale apartment and holiday house projects along the coast of San Juan del Sur and Tola. According to Espinosa (2007), in Tola alone, there are about 13 current residential tourism projects. Some of them have already been completed; some are still in the construction phase and some are still being designed. Condo Hotel Villas de Palermo, Rancho Santana, Arenas Bay Town and Iguana Beach - among other projects – indulge one’s appetite for luxury as condominiums and villas selling for as much as $750.000 have been designed and built to fulfil the expectations of wealthy foreign retirees (La Prensa, December 14th 2006). Some of the proclaimed forthcoming developments include the construction of a marina, a conference centre, shopping facilities, a private beach club and even a golf course. The rapid growth of the second home tourism segment showed irregular and dislocated patterns of development. Some criticism by local communities came about, as houses and recreation complexes were proliferating outside a regulated and monitored frame of construction standards and public policies.

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In 2006, a study was commissioned by the Association of Municipalities of Rivas (AMUR) in an attempt to palliate the increasing discontent and provide municipalities with tools to better manage future developments. In the following sections, the socio-economic and en-vironmental impacts identified are presented. References to similar impacts from the literature are linked in to our findings.

5 Socio-economic impacts Within three years, in San Juan del Sur and Tola, foreign real estate developers have acquired vast amounts of land at an extremely low price, have erected luxurious holiday homes and sold them at expensive prices to North American and European buyers. Since the mid-nineties, speculative transactions have been escalating, boosting coastal land prices from US$ 300 to up to US$ 280,000 per hectare (Bonilla and Mordt, 2008). Due to the prevailing poverty in the region, uneducated farmers often willingly sold their plot of land at a depreciated value – at farmland prices - to developers who then sold the same plots to wealthy buyers at real estate market prices. A similar phenomenon was shown by Visser (2004a, 2004b & 2006) in South Africa as well as Hiernaux (2005) in Mexico, where escalated property value in tourism developed areas have weakened ownership perspectives for young locals or lower income groups. In San Juan del Sur and Tola, some farmers sold their land, as they were enticed by the prospect of sudden wealth to spend their money on consumer goods, hence jeopardising their only means of existence in a short period of time. Others were promised by real estate companies that they could live on their plot and continue their farming activities. However, the promise was only applicable until the property changed hands again. In the South African municipality of Clarens, Visser (2006) observed that second home development resulted in “the maintenance of race and class segregation”. As property development increased, so did local taxes that covered public infrastructure investments, therefore forcing people out of their homes to other peripheral areas. Fritz (1982) and Faulkenberry and her colleagues (2000) have also shown that land owners are either tempted or constrained to sell their land to developers, which results in many locals abandoning farming activities. Once the crop and grazing fields were turned into golf courses, local communities have become more dependent on imported food supply; hence more vulnerable to political and economic changes. Further issues related to land use and ownership have come to light in both municipalities. First, it is worth mentioning that the evolution and the transformation of the Nicaraguan legal framework over land ownership have been ambiguous since 1979.

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Although property ownership is accounted for in the local land registry, in Tola, conflicts arose when different owners claimed ownership over the same piece of land. As a result, some cases were brought to court, which then fuelled some level of distrust in the region affecting its image as a destination (La Prensa, May 18th 2006 and January 26th 2008 among others). For example, in Las Salinas de Nahualapa, Tola, indigenous resident groups have long occupied territories, which in many cases, have never been ruled under any written form of contractual lease or ownership until recently. Furthermore, in Nicaragua, beaches are public areas by law, and indigenous people have tradition-ally been accessing them for recreational or survival purposes. In Tola, the privatization of public goods in the form of fenced residential enclaves, have excluded local communities from their traditional resources and activities like fishing and seashell collecting, which revealed a significant source of alienation. A report uncovers that, as a result of the recent tourism development, only 9 out of the 54 km of beaches in Tola can now be accessed by the local population (Rodriguez, 2007). Pessoa Silva and Lisboa Nobre (2007) exemplified similar accessibility concerns on the Brazilian coast of Rio Grande do Norte. Hosts find themselves increasingly excluded, both socially and economically from tourists by the very nature of urbanization patterns. They also found that resentment rages when locals are displaced from their land due to boosted property values. In their study on the impact of tourism on South Carolina’s coast, Faulkenberry et al. (2000) stressed that most retirees from corporate or government jobs in the northern states seek the security of gated communities where they have comfortable and safe access to the ocean. Although preventing public access with their own internal security systems, such complexes include public infrastructures and spaces behind fences. Consequently, the holiday homeowner is generally non-supportive of social improvements for outside communities. In Tola, investors and local authorities advocate the positive effects of new residential developments on the host community. Employment opportunities and public infrastructures such as new schools, health centers, an extended network of electric lines and a new road connecting Tola to the town of Rivas have been put forward (La Prensa, February 28th 2005). It was calculated that, through the Municipal Development Plan (Plan de Desarrollo Municipal) set by the municipality of Tola, from the 555 jobs created in 2006, 2,800 new jobs will be created by 2010 (Alcaldía de Tola, 2007).

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However, recent developments have questioned those possible positive effects on the local employment, as only limited number of low-income jobs was created during the construction phase and beyond. If more locals can now stay in Tola and work as construction workers, gardeners or security guards, many jobs are also likely to be filled by migrants from other regions and neighbouring countries. To cast doubt on the long-term employment advantage of the holiday home sector, a comparison with the only All-inclusive resort of Nicaragua is made. The resort, located in Montelimar, has 525 beds and covers an area of 12,000 sqm where 108 people are employed on a full-time basis. The resort spends 1.9 million US$ annually for operation in the national economy. Taking into account that, on average, a holiday house occupies an area of about 500 sqm, it would take 24 houses to fill the resort land area. To reach the same level of spending and employment, the owners of each of these houses would need to hire permanently 4.5 people and spend about 217 US$ daily on goods and services in the local economy. No matter how hazardous All-inclusive resorts might be to justify economic benefits to local communities, this comparison shows that holiday home developments score even worse. Although the seasonality pattern of second home tourists has not yet been a major issue in San Juan del Sur and Tola, it has been identified as problematic in previous studies. Because many second home owners occupy their house only during their vacation time, the demand for tourism services is only at a low level and significant direct employment is only created on a short-term basis (Vles, 2004; Mazón, 2007). Faulkenberry et al. (2000) noted that, for minimum-wage jobs such as maids and gardeners, possibilities for promotion and further education are almost nonexistent. On the other hand, second home tourists who stay for several months tend to have more interactions with residents than conventional tourists and are likely to provide source of income for local entrepreneurs. Low seasons might transform lively centers into ghost towns, which would fail to justify of provision with public infrastructure and services to the year-round resident community (Mazón, 2007). In their study on rural communities in Scotland, Bevan and Rhodes (2005) pointed out that some holiday homes that remain vacant throughout most of the year can result in the closure of shops and services due to a fall in demand. Another im-portant economic aspect is that second home tourists have lower expenditure patterns than conventional tourists. In Spain, while the average daily expenses of a European tourist (staying in a hotel) amounts to EUR 93,4, the second home tourist staying in a rented home only spends EUR 33,9 a day, and EUR 17,1 if he stays in his own house (Mazón, 2007).

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Torres Bernier (2003) has observed that second home tourists also tend to adopt local residential consumption habits, namely the use of a private car as well as a limited use of and expenditure on recreational activities such as tourist attractions and restaurants. Therefore, on a daily basis, the conventional tourist seems to have a much greater multiplier effect on the local economy. The municipal income generated by residential tourism can be seen positively in the short term, because most investments in real estate have a strong positive effect on municipalities’ budgets. In Tola, in 2007, it was estimated that second home tourism projects contributed to roughly 13% of the total municipal income (Bonilla and Mordt, 2008). Visser (2004a) and Hiernaux (2005) commented that in the long term, this situation might change radically because of seasonality-driven expenses and necessary investments in the public infrastructure. In San Juan del Sur and Tola, municipalities are already dealing with access to drinking water and road construction issues. In Nicaragua, foreign real estate developers benefit from generous incentives to invest in large tourism projects. This is reflected through la Ley No. 360, which exonerates investors from up to 90% of income and property taxes for a period of 10 years. In the Rivas region, 23 tourism related projects benefited from la Ley No. 360 (INTUR, 2006). One criticism about real estate businesses lies in their lack of commitment to support by-services and infrastructures beneficial to resident communities (Mazón, 2007). In our case study, two visible impacts generated by real estate developers stand out. One is the wear and tear on roads that is caused by heavy truck traffic involved in the construction process. The second relates to the increasing burden of waste storage imposed upon the municipalities’ budget.

6 Environmental impacts Besides the economic effects of second home tourism, there is a danger of serious ecological impacts caused by fast and poorly planned holiday homes developments and unregulated consumption of basic resources. Some well-documented detrimental effects of second home tourism are landscape degradation, reduction of local biodiversity, increased erosion and desertification, contamination of ground water and soils, the disappearance of green public spaces, increased burden of waste treatment, as well as the negative image of badly integrated architecture within natural settings (Gartner, 1987; Vera Rebollo, 1987; Mateu I Llado, 2003; Aledo and Mazón, 2004; Mazón, 2007).

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In Tola, mangrove swamps were destroyed, and erosion and deforestation is visible in San Juan del Sur. Moreover, the use of natural resources such as wood, sand and river gravel for the construction of tourist facilities has left some physical scars to the local scenery. However, it is important to note that no other dramatic impacts are yet visible, since most large-scale projects are still at a very early stage of development. Climatic indicators show that the current scarcity of ground water due to the dry tropical climate of this coastal region, which is available for the local agriculture and recreation usage, should become more critical in the future. During the dry season, from January to April, the municipality of San Juan del Sur has been facing serious problems with its water supply, both in terms of quality (potable water) and quantity. This shortage in water resources, evidenced by the quenching of groundwater level, is already jeopardising several segments of community life, such as the farming sector (La Prensa, May 12th 2007), as well as the growing demand for tourism activities (La Prensa, October 30th 2007). In rural and coastal areas, holiday homes exclusively obtain their water supply by pumping from natural ground-water reserves. As the amount of precipitation becomes even more erratic in the dry season and the level of tourist activities increases, possible conflicts between investors, second homeowners and indigenous communities might become agitated. A crucial aspect under scrutiny is the daily water consumption pattern of both types of holidaymakers. According to the WWF (2004) and the European Environment Agency (2000), the daily water consumption of a conventional tourist who stays in a hotel is between 250 and 300 litres, whereas the owner of a holiday home with swimming pool and garden consumes between 500 and 600 litres a day. These figures clearly show the environmental risk associated with uncontrolled holiday home development. A further concern is in the disposal of waste and wastewater in rural and coastal areas where sewage systems are non-existent. Residential homes would usually have their own soakage pits into which wastewater is discharged. However, due to the lack of regulations and public waste management and assessment systems, the environmental impact of private soakage pits remains uncertain. Uncontrolled waste management is likely to increase ground-water contamination, which, in turn, would affect the potable water supply. Figures reveal that about 50% of Nicaraguans livings in rural areas do not have access to a reliable source of water and that 25% do not have basic sanitation (Fise, 2004). Finally, it can be observed that an obvious lack of architectural harmony is detrimentally impacting the natural attractions of coastal areas in both municipalities.

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7 Conclusions This case study contributes some more light upon the very nature of second home tourism activities. Due to the development and consumption patterns of the holiday home sector – which mainly involve the urbanisation, construction and sale of houses – it may be assumed that these activities should not be accounted for as tourism activities. It is argued that real estate developers not only aim at maximising short-term profits, but also show little interest in developing tourist activities as well as sustaining local communities in the long run. In addition, the fact that foreigners are involved in the purchase of holiday homes does not justify any tourism activity. Consequently, the holiday home sector would be better defined as a real estate activity, and the ambiguous term residential tourism should therefore be avoided for needs of clarity. This investigation demonstrates the risks associated with the disorganised and unregulated development of second homes in developing economies. On the South Pacific Coast of Nicaragua, the professed economic benefit of holiday homes is far from being established, and at this stage of development, some detrimental effects are already observable. Thus, the contribution of the holiday home sector to sustainable development in peripheral areas is questionable. Thus far, the local authorities have failed to limit negative effects because of an obvious lack of budget, experience in the second home segment, an adequate legal framework and clear policies. At the time of this study, no rules were determined on land use and its carrying capacity or ensured appropriate control mechanisms with fines to enforce regulations. No feasibility studies were carried out and no codes of practice or plans guided and monitored regional developments. Since there is potential for severe future impacts to occur in the host of this study, additional precautions and corrective political actions would be necessary. In this respect, a stronger focus on sustainable strategies would help develop and enhance diversified tourist products of high quality, as well as ensure an equitable distribution of financial benefits throughout the entire supply chain.

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Educational programs and financial incentives for small, local and medium-sized businesses for entering tourism and diversifying niche products should also be considered. Community participation, as well as public-private partnerships, would help sustain local development and raise the quality of life. Finally, the great potential of other forms of tourism (ecotourism, rural tourism, cultural tourism etc.) should not be neglected. In this regard, the greatest danger of second home development lies in the overuse of land and resources that could be used otherwise to develop other and more sustainable forms of tourism activities.

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Bibliography Alcadía de Tola (2007): Plan de Desarrollo Municipal. Power Point Presentation. Aledo Tur, A. (2008): De la Tierra al Suelo: La Transformación del Paisaje y el Nuevo Turismo Residencial. ARBOR Ciencia, Pensamiento y Cultura, enero-febrero 2008, 99–113. Bevan, M.; Rhodes D. (2005): The Impact of Second and Holiday Homes on Rural Communities in Scotland. PRECIS n. 70. Bonilla, A. and Mordt, M. (2008): Turismo y Conflictos Territoriales en el Pacífico de Nicaragua: el caso de Tola, más allá de los titulares. PRISMA (Salvadoran Research Program on Development and Environment). Calvet & Asociados (2006): Plan Estratégico para el Desarrollo Turístico “Municipio de San Juan del Sur”. Managua/ Nicaragua. Calzada, C.; Le Blanc, F.; Vandendriessche, M. (2004): Les résidences secondaires possédées par des étrangers. SES no. 156. Espinosa F. (2007): Consultoria para la elaboracion de un studio catastral en el litoral marino de Tola. MASRENACEGTZ. EXCELTUR (2005): Impactos sobre el Entorno, la Economía y el Empleo de los Distintos Modelos de Desarrollo Turístico del Litoral Mediterráneo Español, Baleares y Canarias. Madrid/ España. Faulkenberry, L.; Coggeshall, J.; Backman, K.; Backman, S. (2000): A culture of servitude : The impact of tourism and development on South Carolina’s coast. Society of Applied Anthropology. Volume 59, no. 1. Fritz, R. (1982): Tourism, Vacation Home Development and Residential Tax Burden: A Case Study of the Local Finances of 240 Vermont Towns. American Journal of Economics and Sociology, Vol. 41, 375–385. Gartner, W. (1987): Environmental impacts of recreational home development. Annals of Tourism Research, 14, pp. 38–57. Hiernaux, D. (2005): La Promoción Inmoboliaria y el Turismo Residencial: El Caso Mexicano. Scripta Nova, Vol. IX, No. 194 (05). INSEE (2007): Tourisme. Données Économiques et Sociales 2007. INTUR (2006): Boletín de Estadísticas de Turismo. Managua, Nicaragua. Le Goix, R. (2003): The Suburban Paradise or the Parceling of Cities? An analysis of discourses, fears and facts about the sprawl of gated communities in Southern California. UCLA International Institute. Mateu I Lladó, J. (2003): Turismo Residencial y Dispersión Urbana en Mallorca (Illes Balears). Un Ensayo Metodológico en el Municipio de Pollença. Estudios Turísticos, No. 155–156 (2003), 197–218. Mazón, T. (2006): Inquiring into Residential Tourism: The Costa Blanca Case. In: Tourism and Hospitality Planning & Development. Vol. 3, No. 2. Pag. 89–97. Mazón, T. (2007): El Turismo Residencial en el Mediterráneo Español. http://www.pensandoturismo.com. Mazón, T.; Aledo, A. (2005): Turismo Residencial y cambio social. Nuevas Perspectivas teóricas y empíricas. Universidad de Alicante. Editorial Agua Clara. Alicante/ España. Mazón, T.; Aledo, A. (2004): Impact of residential tourism and the destination life cycle theory. WIT Press. Mottiar, Z. (2006): Holiday Home Owners, a Route to Sustainable Tourism Development? An Economic Analysis of Tourist Expenditure Data, in: Journal of Sustainable Tourism. Clevedon: 2006. Vol. 14, Iss. 6; p. 582.

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The socio-economic and environmental impacts of second home tourism Müller, D. K. (2001): Second home ownership and sustainable development in Northern Sweden. Tourism and Hospitality Research, volume 3, No.4. Pessoa Silva, M. F.; Lisboa Nobre, P. J. (2007): The close relationship between tourism and a privately governed territory – a sustainable urban solution for Brazil? Private Urban Governance and Gated Communities. 064. Rodríguez, N. (2007): Mapa de desarrollos turísticos, conflictos y accesos a playas. Alcaldia de Tola, Mimeo. Torres Bernier, E. (2003): El Turismo Residenciado y sus Efectos en los Destinos Turísticos. In Estudios Turísticos, nº 155–156. Universidad Nacional Autónoma de Nicaragua (2006): Inventario de Requerimientos, Atractivos y Circuito Turístico del Casco Urbano, Zona Costera y las comunidades de Nancimí, Salinas de Nahualapa, El Caimito y Pansuaca del Municipio de Tola, Departamento de Rivas. Managua/ Nicaragua. Vera Rebollo, F. (1987): Turismo y urbanización en el litoral alicantino. Alicante: Instituto de Cultura Juan Gil-Albert. Visser, G. (2004a): Second homes and local development: Issues arising from Cape Town’s De Waterkant. GeoJournal. 60 : 259–271. Visser, G. (2004b): Second homes and Small-town (Re)development: the Case of Clarens. Journal of Family Ecology and Consumer Sciences. Vol. 32, 2004. Visser, G. (2006): South Africa has Second Homes too! An Exploration of the unexplored. Current Issues in Tourism, Vol. 9, No. 4&5, 2006. Vles, V. (2004) : L’hébergement non marchand, un casse-tête pour le tourisme littoral français? Premières rencontres franco-espagnoles du tourisme. Arles. http://www.andalucia.com/spain/statistics/residential_tourism.htm. http://www.laprensa.com.ni/cronologico/2005/febrero/25/economia/economia-20050225-02.html. http://www.laprensa.com.ni/archivo/2006/diciembre/14/noticias/mosaico/158879_print.shtml. http://www-ni.laprensa.com.ni/archivo/2006/mayo/18/noticias/regionales/. http://www-ni.laprensa.com.ni/archivo/2008/enero/26/noticias/economia/. http://www-ni.laprensa.com.ni/archivo/2005/febrero/28/nacionales/. http://www.laprensa.com.ni/archivo/2007/mayo/12/noticias/nacionales/190500.shtml. http://www.laprensa.com.ni/archivo/2007/octubre/30/noticias/nacionales/224224.shtml.

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Section 4: Optimizing Destination Capacity through Real Estate Management Strategies

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A conceptual design of public measures: The case of the Flemish holiday property market

Mia Lammens, Raf De Bruyn & Frank Go

Abstract Over the last years, the Flemish Coast has seen a steady increase in the number of holiday homes. Simultaneously, the number of campgrounds and hotels is decreasing. These trends are caused by the rigidity with which these types of accommodation are innovating and by the strong pressure from the real estate sector on hotels and campgrounds. This paper presents a strategy to tackle the declining stock of hotels and campgrounds. In order to provide a stimulus to the quality and development of the hotel and campground markets, a choice for a common policy is seen as a necessary condition. The most important actions to support this strategy are the deployment of a few large-scale hotel and campsite projects with a strong focus, the initiation of multi-purpose projects and the introduction of more specific destination plans. These projects will only yield a positive outcome if they are preceded by an open stakeholder dialogue. The combination of the various proposed actions should lead to a differentiated supply of sufficiently qualitative hotels and campgrounds. The implementation of these actions is ultimately the most difficult task. In this respect, the stakeholders, including the Tourist Office for Flanders, policymakers on various levels and the private sector, particularly hotel and campground owners face a daunting challenge.

1 Introduction At the Flemish Coast the number of holiday homes has been rising over the past years. Simultaneously, the number of campgrounds and hotels is decreasing. This is the result of the rigidity with which these types of accommodation are innovating on the one hand, and the strong pressure from the real estate sector on hotels and campgrounds, on the other.

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The Tourist Office for Flanders opines that a differentiated supply of sufficient qualitative commercial accommodations (including hotels and campgrounds for tourists1) at the coast. This is a precondition to offer a ’sea-resort’ experience, that tourists perceive as easily accessible and value-for-money spent. As the tourist market is increasingly fragmenting and characterized by individualization, it is consequently important to offer tourists a choice of accommodation facilities. However, this is getting increasingly problematic due to the declining stock of hotels and campgrounds. In this context, and to help resolve this issue, two studies were undertaken that aimed to identify a possible strategy to counter, or at least arrest, the current decline in hotels and campgrounds. The purpose of this article is to discuss the most important levers identified in the two studies in question. They could be applied to bring about an interdisciplinary thought and the interrelatedness of the spatial and commercial dimension to stop the decline of independently owned hotels and campgrounds.

1.1 Definition of the problem A fundamental dilemma in the managing tourism in the Flemish coastal resorts, that underlies many others and emerges in many practical guises, can be summarized as a “corrosion of character”. This is due to the decline of privately and often independently-owned and operated hotels and campgrounds that have the potential to add “couleur locale”. In particular, during recent years (2002–2006) the Flemish Region has experienced a positive evolution in the number of hotels (+10.4%) and their capacity (+7.8%). However, during the same period, the hotels at the coast have known a decline (-13.2% of the number of hotels and -9.4% of their capacity). Campgrounds in the Flemish Region have suffered a negative evolution between 2002 and 2006 (number: -4.6%; capacity: -4.8%). At the coast, the number of campgrounds and their capacity have declined even more (number: -10.7%; capacity: -9.8%).

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Campgrounds for tourists: a camping ground with a specific number of tourist pitches. Tourist pitch: area or accommodation (holiday house), intended for short-term rental (