Is it time to buy a holiday home?
THE only thing more ubiquitous than the mankini this holiday at the coast - the ‘For Sale’ sign.
At the moment, there are two groups of urgent sellers trying to offload their holiday homes in the market, says Dina Porteous, principle of Pam Golding Properties in Margate.
The bigger group is people who bought holiday homes during a time of easy credit in 2005 and 2006 and overextended themselves.
“It was a speculative market which came to a sudden halt during 2007.”
Household finances – more than 11m South Africans are now behind on their debt repayments – are being squeezed and widespread job losses are contributing to insecurity, leaving many families desperate to get rid of these properties.
Pensioners are also putting their homes on the market. They have seen their income drop as interest rates fall to the lowest levels in decades, with the sharp increase in municipal rates and taxes adding to the pressure.
“Buyers are spoiled with choice and they are willing to wait for the pressure to mount to a force sale – (resulting in) the seller getting less than the market value for their properties,” says Porteous.
So, is this the time to buy that place at the sea?
Porteous thinks so, with the market revealing “gems of investment opportunities that are rarely found in boom times”.
In her area, many desired beachfront properties have come onto the market - at very competitive prices. “(This) leaves investors in an ideal position to capitalise on their investments when the market turns."
But this may not happen for a long time, warns FNB home loans strategist John Loos.
He is downbeat about the prospects for the holiday home market, and expects it to stay weak for an extended period.
Jacques du Toit, Absa's senior property analyst, also do not see a recovery soon, with no new stimulus coming in the form of additional interest rate cuts.
Loos says big increases in municipal rates and taxes are making holiday homes less attractive.
Another big worry is income pressure among SA’s high earners.
This group is key to the holiday home market and while they may not suffer from debt pressures like other households, they are starting to cut out non-essential spending as their income comes under pressure.
“Bonuses and share options are not as wonderful as they once were.”
Property values in some established coastal markets where there is a scarcity of land, like Hermanus and Plettenberg Bay, may be preserved, Loos thinks.
But other markets like Jeffreys Bay, and particularly the West Coast, where there has been a building boom and oversupply of properties, could see prices fall further.
According to an Absa report, the price of land for new housing along the coast fell by almost 20% year-on-year in the third quarter of 2010.
A holiday home is for fun – it’s not an investment, contends Loos.
An investment should earn you income and capital growth. There is very little indication that the latter will give you much to hope for over the coming years.
And if you don’t rent your holiday home out on a fairly permanent basis (which may mean that you probably won’t get to holiday there much anyway), you won’t receive any income.
Rental income from holiday homes is erratic, and mostly dead in the winter months. By buying a holiday home, you are probably sacrificing a potential income stream which you could have earned from another investment.
Invest in a two-bedroom flat in an urban area instead, and you will get a permanent income, says Du Toit.
The current glut of holiday homes on the market also shows how illiquid the investment is. If you invested in shares – still the top performing asset class over the long term – you could sell off quickly if you needed the money.
Buying a holiday home is purely a lifestyle decision, agrees Greg Sneddon, an independent financial adviser with the Cape-based The Financial Coach.
When his parents’ holiday home was put up for a sale a couple of years ago, he was sorely tempted to buy it. Instead, he and his wife made a shrewder investment: a tent.
Apart from saving a lot of money in upkeep – including security costs - and interest – at one percentage point below prime, you will still pay roughly R1m in interest over twenty years on a R1m property bought today – Sneddon got to travel and see many parts of the country.
He is also not a fan of time share and says many of his clients regret their investments, which often entail expensive levies and limiting their holiday destinations.
Renting remains the most financially responsible way to go on holiday, he believes. Start budgeting for your year-end holiday in January, and set up a monthly debit order, preferably in a money market account.
Still tempted to buy that holiday place?
It’s a buyers’ market, so make sure you get the best position (on the beach, preferably) possible.
Porteous recommends doing extensive homework about the area.
“Is it commercialising, does the area show sighs of decay, is the local authority affective and efficient, how does the rates charged compare with other areas, what is the crime rate and what other major developments in the area could positively or negatively influence your potential investment?”
And choose a place that is easily accessible, ensuring that you will make maximum use of it, says Sneddon.
The market value of any asset is what people are willing to pay for it. Nothing more, nothing less. It is wrong to say sellers are getting less than market value. Sellers are simply asking more than market value. Also, she is the principal, not principle. Few would put 'principle' and 'estate agent' in the same sentence.
I agree, at over a R1 million we could not afford a holiday home even in the current buyers market. I would rather put away a couple of thousand rand every month towards our annual holiday and go to different places, even overseas.
For anything between R1000 - R2000 per night you can rent stunning holiday houses in peak season in great locations in South Africa. You have to be stupid to buy a place. Holiday houses are high maintenance, always security issues and suck your money. If you super and going to get high utilization by friends and family....then go for it.
Here is a newsflash i bought three properrties at the sea side plett, jeffreys bay and cape st frances over and since 1999 they have all doubled and well hoping one will treble in value this year. i rent them out at 3500 to 5500 a day. no problem. buy now!!
Wow, average R4500/day/property. That's like R13500/day. Wow, so you get R4,927,500 per year? Aren't you worried that telling everyone about it will mean everyone does the same thing and you'll get less?
@Plet Home Owner
Hmm, you rent them out at 3500 to 5500 a day, do you? Every day? 365 of the year, or just the odd month or two over the holidays? I very much doubt the former. You can tell us - what really happens to your properties for much of the year?
Some holiday makers cannot behave and think their money is a licence to destroy. They behave and do things here that they will never do at home. The prices per day for holiday accomodation on the KZN South coast is high because of some eejit holiday makers that trash the places they come to.
Well said Koos - especially the last line! This article also implies urban property is a good investment, which it most certainly isn't.
@ Plettenberg Bay
Go try sell those houses tomorrow and see what you get. I been to Plett 3 times in the last 18mths. Seen the same houses on the market for 18mths. By the way...we rent the most stunning 8 sleeper house in peak season overlooking Lookout Beach for under R2k per day!
“Buyers are spoiled with choice and they are willing to wait for the pressure to mount to a force sale – (resulting in) the seller getting less than the market value for their properties,” says Porteous." LOL!!! Porteous, you are the weakest link, goodbye! Note: market value is what is AGREED between a seller and buyer - not what you HOPE for. If it has been available for sale to the market and that is all you can get, then that IS market value! Muppet!
@plett . I drive through plett almost daily . every second house has a for sale sign ! which ones get ANY tenant between may and november ?
You're not an estate agent in Plett by any chance, trying to punt sales ??
Market value means the true underlying value of a property, not what 2 people are willing to buy and sell for. So all that person is saying if you wait long enough the market value will drop... Your the Muppet....
Thank you Koos! Yes the market value of a property is quite simply what a willing buyer is prepared to pay for it, in comparison whith other similar properties in the same area. Agents are there to guide the sellers and buyers. Agents do market-related valuations and the sellers normally want the price to be higher. All to do with supply and demand. We are not selling shoes with a price tag on it. This is property! Work with an agent that is honest, reliable and knows their area and homes. Sellers normally want top dollar when selling and bargains when buying. Agents are worth every cent they get paid by the seller for their hard work and knowledge. Deal with only the best!
dissagree with Loos on his forecast on Capital appreciation- property will without doubt appreciate in capital value over the next few years- inflation will make certain of that. On the investment property, there will be plenty capital gains- my advise is to capitalise on a "today" debt facility which you can terminate on the sale a few years down the line and put the capital gains into the home you live in- Inflation is already showing its head and the worlds economy is still devistated- what do you think will happen when things take off and people have actually got some money to spend?- Rampant inflation...which will do what to the capital value of homes? Drive them up. Buying power is another issue altogether, we are getting progressively less year on year.
So if the buyer and seller both agree on R1 for the purchase of a property, the market value of that perticular property is R1? Don't be daft now. Please note the word "Market" in market value. Its not just between two people. Andrew G, I think you're the weakest link?
my size fits me
Surely this is not a case of one size fits all? We bought a small place in the Overberg 6 years ago and scrimped & saved to pay it off quickly. The bond was then available for me to buy a premises for my business. We love our holiday home & have never regretted buying it. But then, we also don't see it as this incredible return-generating investment ... there are other things for that.
Does the political climate pose any threat to investing in a holiday home?
With land reform being a priority, when will this distribution strategy spill over to the home owner with more than one house ?
Think you might be wrong. Surely even "the true underlying value of a property" is still what it can be sold for (not what you think it should be valued at). I could also argue that if you wait long enough, the market value will go up!
Ruth If you know of an agent you describe in your story in the Durban North/Umhlanga area, please let me have their details.
I think there's a difference between a holiday house for say Gautengers and a weekend house in the Overberg for Capetonians. I'm about to invest in a weekend house in Pringlebay, which I will use 3 days a week. It's a big outlay, but enjoyment also play a role. Not everything is measurable in rand.
for your interest
I agree with the folks that say save up some meney towards renting accommodation instead of owning one. How many times in year does one go on vacation anyway? and should you buy, you are only guaranteed an income during holiday season..unless you rent your property out to companies that frequent the area, then thats a plus