So why do people invest in them? Is it as a lifestyle investment, for rental purposes or to retire to? What would be a good holiday home investment?
According to Samuel Seeff, chairman of the Seeff Property Group, South Africa is one of the most beautiful countries in the world attracting tourists from across the globe. It is therefore not unusual for local buyers and investors as much as foreign buyers to want to own a holiday home here.
He says is it typically the upper income sector, especially HNWI (high net-worth individuals) who tend to own holiday homes and multiple properties. It also tends to be the slightly older demographic and generally buyers above the 35-year age group.
Part of the reason for this is obviously the cost of property. For most buyers investing in a primary home would be the priority and only once their primary home is paid off, or if they have surplus cash in their monthly household budget, would they consider investing in a second property.
In terms of the best areas to buy a holiday home in, it depends on personal preference, says Seeff. South Africa offers a very diverse property landscape with many areas to choose from. Some might prefer the coast and would buy on the KZN North or South Coast or the Eastern or Western Cape coast. Some people might want a bigger town like Ballito or Hermanus while others prefer the quiet of Witsand, Struisbaai or Langebaan.
Others may prefer a home in a wildlife or golf estate in the inland bushveld areas while others might prefer a home in the winelands such as Paarl, Franschhoek, Stellenbosch or Somerset West. Some may prefer the Karoo or Overberg towns such as Prince Albert or Stanford.
On a precautionary note, holiday markets tend to be hardest hit when there is an economic decline since they are second homes. Currently, while one might have expected the holiday market to suffer due to the Covid-19 pandemic and rentals have indeed suffered tremendously, the purchasing of holiday homes is doing quite well in many areas. This is driven by people capitalising on the work-from-home trend to escape to less confined areas.
Aside from adding to their investment portfolio, Seeff says one of the reasons for investing in a holiday home is that you can get away as often as you like and can stay for as long as you like. It is a home-away-from-home and for many the pandemic has shown the benefits of that.
While it is the opportunity to invest in an asset with inherent capital growth versus for example the stock market which can be more volatile, a second home is an asset that you can enjoy. It is a place where your family can gather for holidays and in many instances, it can later become the place to retire to.
An important aspect to owning a holiday home is that you must be able to manage it, so it is best to contract someone locally to look after it when you are not there, says Seeff. It will require maintenance and security.
Seeff says that if you are investing in a holiday home with the view to renting it out to help cover the costs, you should always do your homework and buy well within your means. Spread your assets. For example, do not tie all your assets up in property because when you need to sell quickly, especially during an economic down-turn, there might not be demand for it.
Budget carefully for all the costs involved. Do not bet on holiday rentals to help you pay for the property. Tourism is very susceptible to economic volatility as we have seen with the Covid pandemic where lockdowns and border closures have had an enormous impact on holiday rental markets.