Article on the over-supply of gites

[paolo]

This alarming/alarmist article appeared in the Mail on Sunday's Property section on 17/10/04:

One afternoon at the end of August, Clive and Helen Tristram sat down and took stock of their gite business. The season had been their worst, their income plunging to just £10,000 - half the amount their six-year-old business once earned.

�We realised then that it just wasn't worth it anymore� says Clive. But the Tristrams are not the only ones suffering. Thousands of British families across France have discovered that the gite bubble has burst.

Once buying a gite or two seemed a guaranteed ticket to the good life and comfortable living in France, but today many gite owners are struggling to cover costs.

And the situation has just become worse: with P&O Ferries closing all but one of the Western Channel routes from Portsmouth, and even reducing between Dover and Calais, British holidaymakers face a difficult journey to France – and so may decide not to come at all.

For Clive and Helen, the slump in the market is troubling, but at least they have Clive's income as a management consultant to fall back on.

However, for Derek and Angela, the downturn is potentially devastating. Having sold up in Britain, the couple sank a significant proportion of their cash into a 17th Century farmhouse with outbuildings in Clere du Bois in the Loire.

After spending almost £90,000 creating four gites with shared pool, they opened for business on September 12th 2001. They expected trade to be slow at the start, but banked on a 14 week season. They have been shocked by the reality.

“Even now we are regularly full for just seven weeks, over July and the rest of the time is in the lap of the gods� says Angela.

The couple are down at least £8,000 on their estimated income – and there is nowhere to turn.

“All our equity was swallowed up doing up the property,� says Angela. “This is it for us. We are not doing it for pin money, this is all we have and we are just surviving.�

The cause of the problem is supply has outstripped demand. Over the past few years thousands of Brits have headed across the Channel determined to fulfil their dream of living in France. It is estimated that 150,000 live there permanently, while 500,000 own a second home.

Buoyed by the rocketing UK property market and the comparatively low cost of property in rural France, and encouraged by TV programmes describing the apparent ease of turning barns into money-making enterprises, many have chosen to fund their dream by becoming gite landlords.

The result is a wholly saturated market in which oversupply is affecting everyone from long established gite owners to beginners. Reports suggest there are five gites available for every person wanting to book one. In the past five years, Chez Nous, the annual gite 'bible' for owners and renters, has seen the number of property advertising pages rise from 330 to more than 500, and is now restricting the number of gites advertised. Almost every gite owner complains of a 'flooded' market causing slow bookings and lower prices. Some are getting no one through the door. Kim Armstrong, whose husband works full-time in London, started trying to rent out her three-bedroom gite in the Dordogne last summer, but has not, had one single booking. She has dropped her £1,100 per week starting price to £800, and now will take any- one for £20 per person per night.

Ruth Reid, an estate agent, has had gites in the Charente for ten years. This year, for the first time, she was empty in June. “People used to book two years in advance to get a private place with a swimming pool,� she says. “Now there is an endless supply of properties with a pool.�

Clive and Helen started their business in 1999 with just one cottage in Charroux, in the Vienne, south-west France. A few months later they acquired a second cottage nearby.

“We calculated on both gites being full for 16 weeks of the year and charging the going rate,� says Clive. “At first there was no pressure on the price during the peak season, and at other times we had good low-season bookings.�

They were so confident about the future that for the 2002 season they rented another cottage called Chez Pierre and sub-let it as a gite as well.

Two years on, however, the picture could not be more different. This year Chez Pierre had no bookings at all, and the two others just a few- many of those let out at a discounted rate. The Tristrams plan to take drastic action.

“Next year we will not let out the third gite, and we want to sell one of the cottages,� says Clive. He says one reason for the market downturn is that former gite holidaymakers have bought their own property. He estimates that at least ten of his regular customers have now bought homes in France - that's 20 weeks' rental lost. Meanwhile, Angela says many of those buying a second house rent it out at a rate that distorts the market. “They are undervaluing the property for July and August and that makes it more difficult for people like us who are doing it for real,� she says.

lngram Monk, of the long-established property website FrenchProperty.com, has some blunt advice for those planning to take on a gite: “don’t do it. You're jumping on a bandwagon that's long departed. People see a TV programme, and think they can do it, but by the time they do so, they are following a dream that is a few years old. There are too many gites now.

“It seems that for everyone who wants to book a gite, there's someone looking to buy one. You think you'll be the exception that you will succeed where others haven't, but that's not the case. You will simply be throwing money away.�

Especially as the latest news from P&O is yet another blow to an already blighted French tourism industry. Last year visitors to France fell by 20 per cent and reports suggest this year is no better. Last year's decline was blamed on last year's heatwave and the advent of cheap flights to even cheaper holiday locations.

“France is more expensive than Spain and then there are the new destinations such as the Adriatic,� says Monk.

But while tourism may have fallen, the cost of a gite certainly hasn't. Estate agent Mike Norman, of Nord Charente Homes, says that ten years ago you could buy a hamlet for £30,000 and spend almost the same again renovating it into a gite complex.

“Today you spend £200,000 to buy a property, then another £30,000 per gite in renovations. It takes about 12 years to recoup the original outlay.�

And customers have become ever more demanding. “People expect more and more for their money now,� says Jonathan White, marketing director VFB Holidays, which has been in the self-catering business for 35 years.

"Once they were happy to have a rustic gite and go back to basics. Now they want a washing machine, dishwasher, swimming pool but they I don't expect to pay any more.�

All this means that making a profit is tough. Tim Williams, who runs a course called How To Buy And Run A Gite Complex, says the return on gites has fallen over the past few years - from ten per cent per annum to between five to seven per cent.

�The ability for gite owners to raise prices has been curtailed because of the competition, yet the costs of a gite complex have risen,� he says.

Potential gite owners often overestimate the return. “For example, if you buy a property with gites for £400,000 and the house you live in is worth half of that, then you calculate your rental income on the remaining £200,000 only" says Williams. “The return would be about £12,000 per annum.�

Monk's grim conclusion is: “Gites are no way to make a living. To have a chance you need at least three gites, but then the workload is astronomical. Having an annexe or a barn gives you no return at all.�

Colleen Snitch, from the holiday rental company Simply Perigord, has 78 homes on her books, mostly those of British second-home owners. "You earn enough for your own holidays, to pay for maintenance and redecoration, but that's it. It will not pay back a mortgage and if you are highly geared, don't expect it to work,� she says.

Clive and Helen calculated that even when they were doing well, their profit was just 20 pence per hour. Now they hope to get 200,000 euros (about £138,000) for the cottage in Charroux and that will go some way to alleviate the pain of previous low returns. As for Angela and Derek, and anyone else struggling with half-empty gites, Monk does not hesitate in his advice. “Sell now,� he says. “I know it sounds morally reprehensible, and in a way it is, but if you don't get out now, it will be too late. Soon more and more people will realise that gites are not a good investment and want to bail out. And then it will be too late.�

What do you think? Alarming or alarmist?

[tansy]

This is the same article that was in The Telegraph about 3 weeks ago - obviously Mail on Sunday has re-hashed the story.

But it is alarming how many people have been moving over... all opening a gite - maybe these realistic stories will stem the flood a bit...on the motorway from Caen the other day I passed 3 furniture lorries all from UK!

[Eebee]

I don't think the article is alarmist. We never intended to let (and damage to the property has proved that instinct correct) but were forced into it when the pound fell out of the ERM and both my husband and I were staring redundancy in the face (all OK on that score now). We were not looking for a profit, simply to cover our costs. Our prices are modest, but then so is our property. However from letting 16 weeks a year in the first few years, and several repeat bookings, we are now down to ten weeks, fewer repeat bookings and many many enquiries which do not materialise, i.e. people are asking for details from several owners at once, ask us to hold the week, and sadly often do not have the courtesy to come back and tell us they have booked elsewhere. What is sad is that those who pioneered the offer are finding their trade diminished by those who jumped on the band wagon later. We would happily give up renting and just enjoy our property as we first intended. We relish the fact that there are very few Brits where we are. Luckily if/when we come to sell, we have a property which will appeal to locals and not just the holiday trade.

[paolo]

And here is another one in the same vein which Tansy kindly sent me. This is from the Daily Telegraph in July and it is about a course you can go on before buying a gite, which seems to be doing a good job in opening people's eyes to the reality of a gite income:

On course for a French fantasy - or is that farce?

The temptation to buy a gîte is sweet and strong, admits Chris Wilson. Now,
help is at hand for heads ruled by hearts.

Here's the plan. Sell the house in Britain, buy a gîte complex in France,
move down there and live off the rental income. Two months' work a year
will see you comfortably off for the other 10. Sounds great. Why doesn't
everyone do it?


The gîte I had seen was beautiful. It was only a few miles from the
Mediterranean, with its own house and swimming pool separated from the
surrounding properties by olive groves. The estate was set off by its own
working vineyard.

Naturally, it was way out of my price range, but that's why I went on the
course, to figure out how to make it work as a business. It wasn't long
into our gîte management presentation before I realised my dream was in
trouble. The two dozen other happy, expectant faces around me also turned
sombre as Tim Williams, business guru and gîte owner, explained the
finances and the potential pitfalls involved in running such a gîte
complex. It wasn't the easy proposition that I had imagined. Not at all.

Margarete Isherwood, the course founder, put me right. "It's not just about
seeing this as a business," she said over lunch by the pool in the warm
spring sunshine. "It's as much a lifestyle choice as a business decision."
And with a rental return that she calculated at as little as 7 per cent on
average, my back-of-the-envelope figures were somewhat off the mark.

To put it simply, an investment of £300,000 would get you a house to live
in and a couple of gîtes with a combined annual rental return of perhaps
£20,000, before charges and taxes. On top of that, there's the ever-present
possibility of having to stump up for whatever European scheme might come
out of Brussels next. For example, the latest edict states that all
swimming pools must have a toddler-proof fence by this summer, or you will
be liable for a E45,000 fine. And don't get Tim started on the new rules
about septic tanks.

Two people I spoke to promptly gave up their dream after they had digested
the financial implications of what Tim was saying. "We hadn't thought it
through," said Philip Forster. "The numbers didn't add up for us and we've
decided not to do it after all." They weren't alone in their decision -
approximately half the people who attended the course decided almost
immediately that they were not ready to take the plunge.

Looking at it as a harsh business proposition, running a gîte complex is
not going to make you rich, but that's not why most of the people were
here. The majority expressed deep dissatisfaction with life in Britain:
traffic, pressure, stress and over-population were the most common
complaints. Reaching 40 and beyond, the idea of starting a new life in
France was very attractive.

Many who attended were cash-rich and time-poor - and running a gîte can
certainly reverse that. It's also difficult to put a price on being your
own boss or spending more time with your family, although this can be a
problem rather than a benefit.

"Being thrown together for 24 hours a day can be a strain for some
couples," said Tim. "If they have come from a situation where one or both
is working hard in the UK, they might find being together all the time and
on their own in a foreign country a bit too much."

In fact, couples splitting up is one of the prime reasons for the move to
France failing. "That's why we ask the couples to fill in a questionnaire
together," said Margarete. "They need to be sure that they both want the
same things out of the move."

This ethos of being prepared ran through the whole course. "We're not
trying to get people to buy a gîte," said Tim. "We're simply offering a
reality check. The objective is to give you the knowledge to make an
informed decision about buying a gîte."

There must be a lot of people for whom the numbers make sense, since the
gîte market has taken off in the past couple of years with prices rising
about 30 per cent year-on-year. That means that the hypothetical £300,000
for a gîte complex turns out to be the minimum figure for any kind of
viable business.

Then, having shattered my illusions, Tim let me in on a little secret.
Despite the sensible planning and careful approach that the course
recommended, the truth behind his story was a little more interesting. When
Tim and his wife, Chloe, went to look at the gîtes they later bought, they
had no business plan, no idea of potential or past rental income.

"We just fell in love with the place and bought it," he admitted bashfully.
"Of course, there is a case for letting your heart rule your head," agreed
Margarete, but as Tim was the first to admit, he wished he had been able to
go on the course he runs and save himself from making mistakes.

Looking back at my gîte fantasy, after the course had ended, I realised I'd
let my heart rule my head - and now my head was telling me there was a big,
red hole in the business plan where the bottom line should be.

Luckily, there was still time to cancel the offer I made for our dream
gîte, since we were still in the seven-day cooling-off period allowed by
French law. That vineyard will just have to wait until I've discovered
another revenue stream to supplement my rental income.

[BungleBob]

If it's any consolation, the same phenomena is going on in Spain - in fact it's probably going on anywhere the Brits have flocked to. Amanda Lamb has got lots to answer for! The boom in overseas property purchases is bound to unbalance supply/demand. For example, we have owners who are competing against three times more competitors this year to last.

There is some solace to be had depending on your approach. To be blunt, many new owners coming into the rentals market simply haven't got the first clue how to prepare their properties, market themselves or offer solid customer service. It's VERY noticeable (to us at least) that the "old hands", those with business experience or those who are quick learners always seem to come out on top - whatever the market conditions.

That's maybe one of the reasons this site is so great. I know loads of owners who wouldn't even consider reading this forum... and then they ask why they never seem to get so many bookings?

I think if you take a solid, business-minded approach to your rentals, you're bound to do well.

Unfortunately the telly tells us we can all rock up in France/Spain/Italy/wherever, buy a castle for the price of a shed, renters will flock to us and we'll all make a bomb. Hmmmm....

Rich

[helene]

There is no doubt that there is more competition and income is becoming more difficult although not impossible - having read the postings elsewhere I can see some people are being very astute about how and where they promote and what they sell. Luckily we bought the property because we fell in love with the main house and two cottages just came with it - we discuss periodically whether we should continue with the gites but so far we have felt we have the property so try and use it. We have however invested in the cottages to bring them up to our standard and continue every year to develop new attractions/benefits. Having said that we try and keep it so it does not 'rule our lives' just a nice to have'. Luckily Michael (my husband) has a private pension taken just before the bubble burst and I have a business/management consultancy business which I run from France.

Finally as we are living in France and have the Gites registered as a business we do enjoy the rather generous tax regime that the Gites attract so although it is not a great deal of money it is very tax efficient.

Lets hope the future is better for all of us than the agents of doom predict
Helene