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Wednesday, 28 October 2015 07:53

When is a holiday home a good investment?

There are mixed opinions on the viability of investing in the local holiday home market, but finding the right homes in the right areas can secure a solid nest egg for retirement.

Ling Dobson, area principal in Pam Golding Properties in Knysna and Plettenberg Bay, believes that second-home owners are not merely planning a lifetime of holidays, but making smart investments. “Holiday homes in secure estates offer an asset yield over the years while the property is used for holidays, and often the holiday house becomes the owner’s future retirement destination,” she says. “Holiday towns ‘grow’ and accommodation becomes a premium – so it also becomes a rental opportunity.”

 

Richard Arderne, area principal for Pam Golding Properties in St Francis Bay, feels that status and convenience are some of the top reasons affluent individuals enter the holiday home market. At the same time, property in the right area has the potential to earn significant rentals over peak seasons, with some monthly rentals exceeding R250,000 over the festive season.

Where to buy

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, reiterates that if the right location is chosen, the property could prove a wonderful nest egg for retirement. According to Geffen, popular locations are the North Coast of KwaZulu-Natal and the coastal and Winelands regions of the Western Cape, with smaller coastal towns such as Plettenberg Bay and Wilderness also fairing well.

If buying purely for investment purposes, Seeff recommends saving for a property in an area that will always be in high demand, such as Clifton on the Atlantic Seaboard. However Seeff does admit that there is potential and possibilities for those looking to enjoy the investment in their favourite South African spot while earning returns on an investment that is generally less volatile than the stock market.

Holiday home 101

Seeff Properties chairman Samuel Seeff, on factors to consider before entering the holiday home market:

  • Do your homework, buy well within your means and spread your assets.
  • Budget carefully, know the costs involved and do not bet on holiday rentals. Tourism is susceptible to economic volatility – domestic and international.
  • Understand that bricks and mortar is an asset that requires hands-on management or the services of a very credible estate agent, and security.
  • While property is an investment, it is not delivering stellar returns right now. Values have increased but holiday areas are especially susceptible to economic volatility. When the 2007/8 economic crisis hit, many holiday and second-home owners desperately tried to offload their properties and soon the market was flooded. Combined with almost no demand, this led to a tough downturn for the property market. Most areas have still not recovered to pre-2007/8 sales levels.

This article originally appeared in Neighbourhood, Sunday Times.