Loading...
See More

Is it time to buy a holiday home?

Jan 20 2011 11:09 Helena Wasserman

Related Articles

House prices maintain momentum

Is renting the new buying?

Gautrain no boost to property prices

Cape households have biggest debts

Can I afford a house?

 
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.
 
- Fin24

property  |  interest rates  |  house prices
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
24 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

New forms of digital technology are changing the very ways in which entrepreneurs run their businesses.
 

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...