Ensure a solid property investment

Now that the South African property market is slowly moving past the effects of the recession, it is anticipated that demand for leisure properties will slowly increase, says Adrian Goslett, CEO of RE/MAX of Southern Africa. “However,” he says, “It should be remembered that the leisure property market always lags behind the property cycle by about a year to 18 months. Therefore, while noteworthy recovery is not expected in this sector for some time to come, there are currently great leisure investment opportunities available to buyers.”

Goslett says that South Africa’s reintroduction to the global economy post 1994 elections gave the country an opportunity to showcase its investment opportunities to the world. More than ten years on, during the height of the property boom from around 2005 to 2007, luxury leisure and lifestyle properties gained popularity with both local and international buyers.

“Areas like the Atlantic Seaboard in the Cape, the Garden Route and the KwaZulu-Natal north coast saw a massive surge in demand for luxury and leisure properties, as did the Big-5 areas in the northern regions of the country. Soon high-end lifestyle estates that catered to a multitude of needs were being developed in scenic areas around the country.”

Coming off a low base, these kinds of properties were relatively affordable by comparison to international standards and therefore snapped up, and still more were developed to cater to the continuous and increasing demand. “While many of these properties were highlighted in the media as belonging to international investors, many high-income local buyers, typically professionals and corporate executives, contributed significantly towards the upper real estate market transactions in the leisure and lifestyle category,” says Goslett.

In an effort to meet demand for these kinds of properties, the supply increased, thereby making holiday homes a more affordable investment for many South Africans. A second home away from the hustle and bustle of the city became a lifestyle requirement for many South Africans that could easily be obtained.

Then, in late 2008 the global recession hit, and with many households having to tighten their belts and closely watch their wallets in order to survive, second homes and leisure properties fell right off the list of priorities. In fact, many of these homes were put on the market and demand for leisure property declined.

“Be that as it may, South Africans are spoilt for choice when it comes to deciding upon a location for a leisure property and the leisure market stock currently available includes a range of properties in a variety of leisure destinations and price brackets around the country,” notes Goslett.

“Property is still considered to be a strong asset class in which to invest, particularly because it is still the only asset class where an investor can take advantage of gearing,” Goslett says, “And those looking to invest in a leisure property should remember that historically these kinds of property offered very attractive returns.”

However, Goslett also notes that the property investment landscape has changed, and buyers need to be absolutely sure of their investment before they commit financially. As with any property investment, leisure buyers need to establish a few key factors that will influence their return on investment potential. Goslett provides the top five aspects holiday home buyers should scrutinise carefully:

1.      Location

While it’s all been said before, location remains ever important, so buyers should research the area and establish the level of property appreciation it has achieved over the past year, how well maintained the area and its facilities are and establish the general market conditions prevailing in the suburb.

2.      Into the future

Property is a long term investment, which means buyers should not just look at the property and the area as it is now, but find out how it will be in the future. “Leisure buyers should look at future developments and infrastructure planned for the suburb, as well as zoning and transport routes or nodes that may affect the tranquillity of the area,” Goslett says.

3.      Find out about the funding

There is no point in investing in a holiday home that is going to put extra strain on your finances, so most importantly, holiday home buyers need to consider their financial position, paying particular attention to the acquisition costs such as a deposit, transfer fees and conveyancing fees, as well as the impact of possible interest rate increases, ongoing monthly maintenance, security and insurance costs and the rates, taxes and utility tariffs in the area.  

4.      Going the distance

Holiday home buyers should also consider the practical implications of managing a property in a different town and consider appointing a professional rental management company that can conduct regular inspections and screen, select and place tenants. These fees need to be added into the overall budget.

5.      Use or lose

While a holiday home could always generate rental income during times when it is not in use by the owner, there is no point in owning a holiday home that will seldom or never be used. Goslett says leisure property buyers should carefully consider how much use they will make of the property in the years to come to establish whether or not the purchase will be worthwhile.
With any property purchase, a good investment decision can only be assured if a buyer has done all the necessary homework and comparisons and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it, says Goslett.
“While the recession has meant that property is not appreciating at the rate it once was, astute property investments still have the ability to provide investors with solid returns,” Goslett concludes.
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