Although the demand for holiday homes in South Africa lost some momentum at the start of last year, according to the FNB Holiday Town House Price Index for February 2018, a renewed year-on-year growth acceleration was demonstrated in the results of the last half of 2017.
In fact, the demand for holiday homes in South Africa has remained reasonably buoyant since 2013, and many property investors purchase a holiday home as a way of diversifying their wealth portfolio and creating an alternative source of income.
Or, for some, a holiday home is quite simply just that — a holiday home. A precious escape away from the hustle and bustle of city life; a safe haven where your only responsibility is not burning the tjops on the braai.
Whatever your reasoning, buying a holiday home does come with its own unique set of considerations that don’t always apply to other types of properties. For the sake of your finances and sanity, it’s worth considering a few important factors before you make your purchase.
1. Maintenance
As idyllic a location may be, and as much as you may fall in love with the thatched roof of a fisherman’s cottage in Paternoster or the rounded gables of a Cape Dutch house in Stellenbosch, don’t forget to factor in maintenance and the costs involved, especially when it comes to older houses.
If you’re only going to be using the home for holidays, it may well remain vacant for periods of time, so it’s important that you either buy something in a good state of repair or set to work to fix any issues. Otherwise, you could be greeted by a crumbling building when you finally do get the chance to unwind, and will spend precious days of vacation time honing your DIY skills.
And if you do plan to let out the property while you’re not using it, then bear in mind that it will need to meet tenant requirements and maintain a competitive edge in the market.
2. Rental income
If you are planning to buy a holiday home to create an income stream, it is important to be aware that short-term rental earnings may be seasonal rather than steady, depending on the location. If you buy a holiday house in Camps Bay, for example, you may well enjoy full occupancy from December to April, but should be prepared for quieter winter months when the cold Atlantic waters aren’t quite as appealing.
Your rental income may also be influenced by public holidays, school holidays or religious festivities. It is, therefore, worth preparing in advance and planning your own use of the house around these peak periods, so that you can maximise your rental income and make up for losses whenever it is vacant.
If you are planning to use the property for your own leisure then it’s important to communicate with a rental agent in advance when the home won’t be available to let.
3. Location
Although the thought of hiding away from the world may appeal to you after being stuck in the office and in traffic, bear in mind that a house in the middle of nowhere may attract a narrower pool of tenants or holidaymakers. The location may also affect your home’s re-sell value. So, while that farm off the beaten track near Loeriesfontein may seem like a great idea when you’re feeling worn out by the daily grind, it may not be such a good idea as an investment.
Bear in mind that not everyone has a 4×4, so it’s also important for the property to be accessible, as well as in a good location. A popular area and nearby attractions will all work in your favour when finding tenants or a future buyer, and it’s also worth trying to understand what tourists visiting the area are interested in. For example, people who go on holiday to the coast are likely to want a good view of the sea. If possible, it may be worth creating a best-of-both-worlds situation where you can enjoy a certain idyll or lifestyle, while still being in reach of amenities and activities that will attract other people.
4. Finances
When it comes to buying a holiday home, it’s important to retain your investment as well as enjoy the element of escapism. Praven Subbramoney, CEO of Private Bank Lending at FNB, notes in an article published by All4Women that many “holiday homes are financed like any other investment property. Therefore, an ideal option would be that of a structured loan, as it provides secured finance for property acquisitions that allow investors to borrow against a mixture of asset classes such as a combination of property, shares, cash or investment portfolio.”
Don’t hesitate to arrange a meeting if you wish to discuss your options and review your situation to decide whether a holiday home may be a good investment for you — both personally and financially speaking.
(Info sourced from all4women.com)