Agents report reviving interest in this market and expect even more over the festive season. By Bonny Fourie
The holiday property market is likely to see a flurry of activity over the next few months as people look to invest in second properties. After experiencing a flat market for some time, more people appear to be buying holiday homes again.
The FNB Estate Agents survey shows “a slight pick up” in holiday home buying activity in 2019, following a “generally declining trend” since 2017, says FNB economist Siphamandla Mkhwanazi.
In Q3 2019, holiday home buying was estimated at around 2.5% of total residential property market volumes in South Africa, slightly up from 2.3% at the beginning of the year.
“This improvement was likely driven by the attractive pricing we have seen in the market in general, one that is leaning more towards a buyer’s market.”
Although Absa does not have figures specifically for holiday home purchases, it does note the purchase of secondary homes which are often used as holiday homes.
“People purchase a second home for a variety of reasons, including as a holiday home, a place for elderly parents or guardians, as a student apartment or for investment purposes,” says Geoff Lee, managing executive of home loans at Absa retail and business bank.
“Unfortunately, the Deeds Office does not collect data on the ‘expected use’ of the home. However, it does track the number of properties owned by an individual. “From January to August there has been an increase of 10% year-on-year with regards to second (or more) home buying,” Lee says.
Coastal property markets are most popular as holiday home buys as people look to holiday near beaches, particularly in the Western Cape and KwaZulu-Natal. Mkhwanazi says Durban has seen the biggest increase in holiday home buying activity, the reason appearing to include recent developments in the north coast and relative affordability compared to Cape Town.
“Prices on the Atlantic seaboard in Cape Town do seem to have softened, which will help with the buying and selling activities. In addition, estate agents estimate these purchases to have constituted approximately 10% of the total buying volumes in Durban, versus 5% in Cape Town in Q3 2019.”
As the property market currently favours buyers, there are many properties on the market and “some excellent deals” for below market price, says sales associate at Re/Max Town and Country, Yvonne Teixeira. “Currently, the levels of holiday home selling are better than they were in the beginning of the year. Our sales are still slightly down on the previous year, but are picking up slowly.”
In 2017 and 2018 the Atlantic seaboard holiday buying market experienced a decline as the severe drought, among other issues, gave potentially investing visitors reason to pause, says Philip Gullan, a sectional title specialist for Dogon Group Properties. But with the drought “well behind us” prices, which had experienced a decade of growth, have now corrected, and there is value to be found, the specialist says.
Currently in the south peninsula region, however, the acquisition of holiday homes is “very slow” and “certainly lower than in previous years”, says Jeremy Barnes, regional manager for Greeff Christie’s International Real Estate.
There is also an abundance of stock available as the first “non-essential asset” to be sent to market during times of financial hardship is the holiday home. It is also, generally, the last purchase to be made once the economy has turned on its way to prosperity.
Despite the 2018/2019 period being tough, Richard Hardie, chief executive of Knight Frank, says there has been “good interest in the really good products” in the holiday home market in general this year. Mkhwanazi says, however, that the past year or so has seen an increase in the number of holiday homes being put on the market, although this “might be linked to the rise in the emigration trend”.
“More recently, however, we have seen that sellers have started pulling their properties out of the market, presumably given the tough selling conditions. “This has helped narrow the gap between supply and demand, and if continued, should see prices stabilising,” Mkhwanazi says.
Money put down after the holidaymakers have left town
The busiest periods for holiday home buying are those that follow the peak holiday seasons. Only “after the crowds clear out” can buyers get a better idea of what an area has to offer, says Barbara Larney, broker/owner of Re/Max Town and Country.
“They are also more likely to get a better deal when making an offer as most sellers are serious about closing a sale before (the next) peak season starts.” The primary increase in holiday buyers comes in the early months of each year, says Philip Gullan of Dogon Group Properties.
“With the Western Cape in particular, those who have spent their summer here may look to invest in a holiday property, and often take steps towards buying next year’s vacation spot.” The south Peninsula area becomes “very busy” with viewings from mid-November until the middle of January, says Greeff’s Jeremy Barnes.
But transfers are seldom completed during this period. The spike in interest generally starts in the winter as buyers start building relationships with agents, hoping to buy before the summer or by the start of the new year, says Greeff senior broker Tim Greeff.
Richard Hardie, chief executive of Knight Frank, says the period after Christmas is when the “really serious” buyers come through, “but we do also start to get people coming from October and that really runs up to about Christmas”. He is already seeing an increase in interest in the agency’s properties and is receiving inquiries “a bit earlier than we normally do”.
“I think there is going to be more interest this year, especially now that we have got politics out the of way and we have water. I really do think there is going to be an increase this year.” There is no doubt this is the time to buy, says Gullan. “Prices are low, and we are at the bottom end of a property cycle.
“With an upturn already in motion, value in terms of capital appreciation is readily available. “South Africa is a bucket list destination for people around the world, and our local tourism market, particularly in Cape Town, will always be a drawcard, as long as the sun shines and we have beautiful beaches to grace our iconic coastline.”
Whether purchasing a holiday or primary home, Barnes says the current offering of properties “might not be matched for years to come”.
Visitors value coastal properties for more than just vacations
Many Cape Town holiday home buyers are British and European, especially German, says Knight Frank’s Richard Hardie. And they love Constantia.
“They like it because it is central and they can easily access the sea. It also has the mountains, beautiful views and Constantia Village on the doorstep. If they want to go into town they can do it all.
“They can nip over to Simon’s Town, Noordhoek and Fish Hoek pretty easily. Other places that are popular are Camps Bay and Bakoven, the V&A Waterfront, and Hout Bay.”
Many buyers and current holiday homeowners are from Joburg, Hardie says. Buyers from the interior of the Western Cape, predominantly those involved in agriculture, also like Cape Town’s holiday homes, says Greeff’s Jeremy Barnes. Cape Town urban dwellers also buy these properties for use over weekends or holidays.
In terms of holiday home buyers from other provinces, he says: “Leading the charge would be the northern provinces followed by Free State and Kwa-Zulu Natal. Buyers are usually in their 40s and 50s and often target Cape Town, Stellenbosch and Paarl.”
A large contingent of holiday home buyers are from the UK. Cape Town’s Atlantic seaboard and CBD are always popular with holiday buyers, not only for amenities and experiences, but for the value these properties carry with them, says Dogon’s Philip Gullan.
“Purchasers know there is capital appreciation to be had here and in the periods that they do not use their property the option of short-term rentals such as AirBnB allow for impressive yields.”
Suburbs within Cape Town that are always popular include Sea Point, Green Point, Mouille Point and, at the top of the market, Clifton and Camps Bay, he says. While a large number of holiday home buyers are from Gauteng, buying activity among foreigners increases as the rand weakens, says Ari Voyiatzis of Re/Max Living that operates along the Cape’s Atlantic seaboard. This is attractive to holiday home buyers from Europe.
“People mostly want to be close to the beach or on the beachfront. Buyers want the lifestyle of walking to the beach and hearing the ocean. Kite surfers desire to be as close to the beach as possible and many beachfront homes are transforming into guest houses for kite surfers.
“Sunset Beach is one of the top 10 kite surfing hotspots in the world.” Barbara Larney, of Re/Max Town and Country in Hermanus, says: “The identity of Hermanus has also changed. It is no longer just a little holiday village that empties over the off-peak seasons. “There has been a paradigm shift with many people working from home or commuting and this affects the reasoning behind property purchases.”
Caveat emptor: Be prepared
In current market conditions, buyers are able to obtain good discounts on asking prices and this has supported holiday home buying activity, says FNB economist Siphamandla Mkhwanazi.
Increased competition among lenders has lowered borrowing costs even further and enforced more innovation, making this a good time to buy.
But Mkhwanazi says holiday home buyers must remember:
◆Maintenance: Investment property often attracts maintenance costs to ensure it meets existing and potential tenant needs.
◆Rental income: Investing in property for rental income carries the risk of an interrupted flow of income as a result of non-payment or prolonged vacancies. Buyers need a plan to cope with this.
◆Location: The correct location can help attract the right calibre of tenants willing to pay a suitable rent.
Swallows fly in: Deep south popular
The south peninsula region may be seeing a slower holiday home market, but Greeff’s Jeremy Barnes says it is necessary to differentiate between a holiday home and a second home.
A second home is often acquired by foreign nationals, generally retired, who intend to occupy the property during summer months. “These buyers are colloquially referred to as ‘Swallows’ avoiding the northern hemisphere winter.
“In the Western Cape we have an active Swallow contingent. Their areas of choice range from Constantia, False Bay as in Kalk Bay and St James to Noordhoek, Kommetjie and Scarborough. This market is reasonably buoyant in comparison to the holiday home market as a result of our weak currency, which makes the purchase for foreigners very attractive from a financial perspective.”
Location is vital: Consider expenses
Lightstone data shows second home activity ranged between R1.5 billion and R1.7bn a month in the 20 months to August 2019. This represents about 1 200 to 1 400 properties sold a month, says Absa’s Geoff Lee.
“Deeds Office registration data for second (or more) properties shows there was an uptick in the number of homes financed in November 2018, with no strong movements for the rest of the year. November registrations generally pertain to sales concluded three to four months earlier.”
He advises: “Every purchase needs to be considered in terms of the burden it will create on a person’s finances. Property is always a long-term investment, so location, price and the condition of the property are important factors.
“When buying a second property in a distant location, consider how it will be managed from afar.”