Investment Opportunity in Austria

Someone made the remark that this year would be “an investor’s nightmare!” It certainly sounds grim. Interest rates are low. Stock markets are in a 15 year down cycle. Although investors sit with a lot of cash, there seem to be few investment opportunities with a low risk profile.

We made a leveraged investment in property in Austria in 2002. Although the entire development was sold out before these chalets were even built, the good news is that another small window of opportunity has opened.

Property is an excellent investment if it can generate sustained rental income as well as capital growth. However, in my experience, these opportunities are few and far between. And the rental and management of the property could be a headache, unless you have an “engine” that ties it all together.

Let me tell you an entrepreneurial-spirit-in-action story about our Dutch friends Ton and Yvonne Jansen, whom we’ve known since 1974.

They had a holiday chalet in a picturesque Austrian ski-resort, Königsleiten, since the early eighties. As normal with holiday accommodation, they could only use the chalet for a few weeks every year. Yvonne started to rent out unused weeks, and this was so successful that other chalet owners asked her to rent out also their unused weeks. This remained a profitable little sideline until Ton, who was marketing manager for a large European IT company for some twenty years, applied his marketing skills to their niche market in Holland and Germany. The business exploded with the demand outstripping the supply of holiday accommodation.

Ton found that the highest demand was for luxury accommodation that would sleep an extended family or a group of friends of up to 12 people. Königsleiten was bursting at its seams and the old town buildings were being swamped by modern apartment buildings. Ton and Yvonne then had the brilliant vision to bring a stately old unused Austrian farm house to Königsleiten’s centre as a large holiday apartment. The idea caused huge excitement in the community. A 300 year old farm house was found in the valley. It hasn’t been in use for 40 years and it was dilapidated.

During the summer of 2001 the modern apartment building was erected, finished off with the wood from the old house, and “De Boerderij” named Am Fuschterhof was completed before the ski-season started. It has three apartments, each luxuriously fitted out and sleeping up to 12 people. The complex has underground parking, a sauna, ski-room with heated ski-boot rack. Am Fuschterhof was fully rented for the entire ski season of 2001/02!

According to our information it was the first time an old house was “saved” in this way in Austria. It caused a sensation in the local press and the building became a tourist attraction! But more important, it established goodwill and an appreciation by the local community and visitors.

Even before the project was completed the local community in nearby Wald, situated in the fairy-tale beautiful Pinzgau valley, approached Ton. They were very keen to get a slice of the holiday visitors’ action for their community and made a very good proposal. He developed a complex of thirteen chalets for sale, but under the obligation to the community that all unused weeks will be available for rental. He was a bit nervous about sales and developed only seven during 2002. However, the investment proved to be so attractive to investors that most of the chalets to be built in 2003 were sold as well.

We invested in one of these chalets. After the ski season of 2002/3, we were already able to repay some capital out of the rental income. Because we can see on the rental web site how many bookings there are for this chalet, we already know that we would cover interest and repay capital in 2004 and 2005! I consider this an investment with a low risk profile.

The community has recently approved a second phase for development of 8 chalets to be ready for occupation and rental in December 2004. One of these chalets will be another ancient farmhouse from the valley to be relocated and modernized. The project is already generating the same excitement as Am Fuschterhof caused in Königsleiten.

Quality of building in Austria is in another class when compared to building quality elsewhere. The local bank guarantees 72 % of the purchase price as loans to private individuals on the commitment that unused weeks will be available for rental through Ton and Yvonne’s business and the income to be applied first to running costs and then to the repayment of the loan over a period of 20 years.

Please note that this is not only a leveraged investment with low risk, you also have free luxury accommodation for a large part of the year in one of the most beautiful valleys in Europe! With the ski slopes 10 minutes away by free ski-bus, the golf course at Mittersill only 15 minutes away, and the luxurious walking trails through the Hohe Tauern Nature Park with the largest waterfall in Europe right next door, you have a winter and summer breakaway rarely found in Europe.

It is unlikely that the chalet would be rented out for more than twenty weeks per annum. Ten weeks rental should cover your repayment obligations. The rest of the year the chalet is available to you.

Over the past 25 years the value of chalets in this area appreciated on average 10 % per annum. Recently a 5-year old chalet, the same size as ours but not as luxurious, sold for over €100 000 more than we paid for our chalet!

For more information, pictures, and detail in English, you can click here.

Please note that all the chalets mentioned above have already been sold. Negotiations are under way, in partnership with the community, to develop in 2006 a Holiday Park with some 20 more chalets by ChaletsPlus. However, I don’t expect this investment window of opportunity to stay open for long.

Philip de Bruin