Holiday homes: yay or nay?

Private Property South Africa

According to a recent report issued by John Loos, Household and Property Sector Strategist at FNB, holiday town property markets are beginning to pick up once more.

Albeit it off a low base and after years of lagging the primary residence-driven city markets, Loos says that data captured by the FNB Estate Agent Survey suggests that these markets are beginning to rebound, with 3% of homes bought over the past four quarters estimated to be holiday homes.

Notes Loos: “This does not point to any strong upward trend but it is above the low point of 1% reached at a stage in 2010. These mildly improved levels of demand may be sufficient to begin to reduce supply “overhangs” in many of the holiday town markets, thus supporting some improvement in average price growth off a low base.”

Constraining factors

Loos adds that despite the improvement in this market, FNB remains of the belief it won’t outperform major city markets for some time to come as economic growth looks set to remain stagnant and the impact of global and local stimulus measures “wear thin.” Domestic interest rates are also starting to rise and more mild hiking is expected in 2015, which will probably contain the pace of growth of the residential market as a whole he says.

Additionally, Loos expects both the primary and holiday markets to be constrained by on-going cost increases relating to owning and running a home, notably in the form of strongly rising municipal rates and utilities tariffs such as the 2015 double-digit Eskom tariff hike.

With this in mind and the holiday season just around the corner, holiday makers would do well to think carefully before making an offer on any holiday homes they happen to fall in love with.

Think before you break away

As is the case with any property purchase, there are financial implications which come into play as Adrian Goslett, CEO of RE/MAX SA points out: “A holiday home should provide you with a place to relax, and not be a source of stress and financial strain. Before venturing into any leisure property investment it is imperative for holiday home buyers to consider their financial position, paying particular attention to the acquisition costs such as a deposit, transfer fees and conveyancing fees.

“Other aspects that also need to be considered are the impact of possible interest rate increases, on-going monthly maintenance, security and insurance costs as well as the rates, taxes and utility tariffs in the area.”

According to Goslett, holiday home buyers should also consider the practical implications of owning and managing a property in a different town. “It might be necessary for the owner to hire a professional property management company that can conduct regular inspections and screen, select and place tenants. These fees need to be added into the overall budget.”

Other aspects to consider include the amount of time you will realistically be able to spend at the property, its proximity to popular attractions and amenities and its re-saleability, all of which will add up to the purchase being a viable one or not.

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