Holiday Homes: are they still a good investment?
Category Blog
In the current economic downturn in South Africa, the property market is facing challenges, and no more so than in the holiday home sector. Whether you already own a holiday home, or are considering the purchase of such, future prospects are of prime concern.
Certainly, up until a couple of years ago, investment in a holiday home was considered fairly sound; holiday homes could present many valuable spin-offs for the owner, not least the increment in land value alone. However, a changed landscape brings new challenges, and while 'nest-egging' in a second property may not hold quite the attraction it used to, there are a numerous benefits still on the table.
Working the positives
Location: Prime positions for views, beach access, mountain trails, amenities, etc, will always keep the value of your property steady, even if it's not currently growing. There are holiday homes that offer peaceful, rural serenity, and those that are close to modern convenience such as shops and restaurants. In today's uncertain economic climate, you'd probably be better off with the latter. And even more so, if the property lies within a secure estate.
If your property is well situated, it could still stand to benefit despite a downturn. Heading for the hills and isolation is not as popular as it used to be, and you would do well to consider property more aligned with current needs such as security, community, and access to popular venues. But no matter the location, you will still have to calculate the costs of fluctuating occupancy between peak seasons.
Investment: For investment purposes less volatile than the stock market, the smart holiday home buyer should seek high standard property offering good rental return and above-average growth potential. Upmarket areas would be prime choice, with security, close amenities, and good property management in place. The high-end market includes such sought-after areas as Plettenberg Bay, KZN North Coast, Umhlanga Rocks, the Cape winelands, and the Atlantic seaboard.
Unlikely investments: Much depends on what type of property you buy. Time share, serviced accommodation is probably least recommended. These come with various restrictions and are less appealing for your own ideas of vacationing. Rather consider a stand-alone property that you can control, revamp and personally monitor occupancy. Always purchase with sound investment fundamentals in mind. Ask yourself why you are buying this real estate in the first place, and what benefits you can be certain of, or perhaps merely imagining.
Rental: When not able to take up the holiday accommodation yourself (or that is not your purpose with regard to ownership), the rental value can be truly beneficial, depending on locality. You would need to ensure that the rental is viable - that it gives you the returns needed to cover the costs of keeping the property in good condition. This is when you should make use of the advice and management experience of a professional estate agent.
Retirement: For many people the purchase of a holiday home is often seen as an eventual retirement home. There is the hope that, despite the stock market, the property will grow in value. In addition, it has income potential during the time it is not needed. Then, once retirement is within sight, it will provide a fully-paid home with the attractive 'holiday at home' feeling. The main family home once sold, then presents a tidy nest-egg to run the new home, providing low-cost living for a care-free retirement. Managed with vision over the long-term, a holiday home can prove a prime investment.
Holiday savings: Calculating the costs of a holiday, especially with a family, can be daunting. Holiday money is also money gone up in smoke, so to speak - you're not going to get any returns on what you spend on travelling and holiday accommodation. However, slipping off at convenient moments with your family to a place that is your own - comfortable welcoming, and without time frames - is attractive. Drawbacks may include the fact that you feel obliged to make repeated visits because you've paid for it, or the fact that when you would like to be there, is precisely the time you would make the most rental money.
Lifestyle: The perk of having your own 'getaway' place within a couple of hours drive, is appealing. Your own holiday home by the sea or in the mountains can be an emotional draw, a way of life. There's nothing like zipping off on a Friday evening for a laidback weekend, or spending a few days by the ocean to restore the spirits. While some might advise that booking holiday accommodation is cheaper than pouring money into your own space, the value of having that space to yourself whenever you want it, is often the key worth of the investment.
Factors to consider before you buy
- Do your homework, buy well within your means, and pay attention as to how you will weather negatives such as fluctuating occupancy levels from season to season. You can't always bet on holiday rentals, and tourism is susceptible to market volatility - both domestic and international.
- Maintenance costs, as with any building, will have to be calculated. Management of the property and letting procedures will need professional application through either a credible estate agency or hands-on management of a locally appointed person. Security of the property is also a cost you can't avoid.
- If you're letting continually, then it's preferable to ensure the accommodation is fully equipped. People expect televisions, DVD players, freezers, fridges, washing machines, heaters and blankets. And all of this must be insured.
- When letting there is always the danger of damage to your property by holidaymakers. The cost of maintenance must be balanced against returns; it's pointless having multiple tenancies if the repair costs afterwards are just too high.
- Tax implications must be considered. You need to declare rental income in your tax returns. You will also have to pay capital gains tax when you sell the property or transfer it into someone else's name.
Holiday accommodation is certainly worth thinking about if it suits your pocket, your long-term view, and your lifestyle. Buying a holiday home should never be an impulse buy, or to impress. It should be well-considered and evaluated against your circumstances and goals - and preferably handled, managed and advised by a competent real estate agency.
The Leapfrog Property Group
Leapfrog Property Group offers a fresh and innovative approach to buying, selling, renting and property investments, ensuring the best property deals for clients across South Africa. Our agents are qualified, trained, experienced; our approach bold and spirited, driven by heart, generosity and honesty. It is our mission to advise, eliminate obstacles and save you unnecessary expense. Trust is our watchword. And value our motto. Armed with our combined credentials, we are the bright face of excellence in the South African market.
Find us at: www.leapfrog.co.za
###
Author: Leapfrog Property Group
