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Prospective buyers should do their homework and work with a credible estate agent to ensure they make a good investment. Photo: Leon Nicholas

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• Be cautious when buying off-plan

Homeowners fortunate enough to afford a second property can take advantage of the low interest rate and more homes to choose from at good prices at the moment. However, they need to do their homework to avoid pitfalls.

Adrian Goslett, chief executive of RE/MAX Southern Africa, warns that while the allure of an idyllic holiday location may tempt many buyers, there are some definite dos and don’ts when it comes to holiday home investments.

“Firstly, based on the fundamental economic principle of supply and demand, a well-chosen holiday home can, over the long term, be an excellent investment as, more often than not, these properties remain limited by geography – and limited supply will lead to price growth.”

He said a well-chosen second home could be a sound investment that generated an income through rentals and could also be used as a retirement investment.

“Generally speaking, during recessionary times, the leisure property markets tends to take the worst knock as holiday homes are high on the list of expendable assets. But while holiday properties tend to be lagging behind in the property market recovery, for those in the market to buy a holiday home, there are many well-priced leisure properties on the market from which to choose.”

He added, however, that as with any property purchase, holiday home investors needed to do research to ensure that their investment would be a viable one.

“In today’s stressful and often financially driven world, the benefit of owning a leisure property is twofold: it provides a safe haven to escape the rat race every now and again along with a solid return on investment, if you have purchased wisely and undertaken all the relevant due diligence.”

Samuel Seeff, chairman of Seeff properties, said that with the property market outlook set to remain relatively flat for 2012, it was one of the best buyers’ markets in decades.

“First-time buyers and those looking for a second property can now find value in the market not seen for years.”

Buying in a down-market can be one of the smartest moves, but Seeff said that by waiting for prices and interest rates to decline further, buyers risked getting caught up in a market on the upswing.

“On the back of renewed global economic uncertainty, both demand and property prices came under pressure last year as buyers, and especially investors, took a cautious approach. This has led into one of the most favourable buyers’ markets.”

Seeff said that with interest rates at a 31-year low, mortgages were now more affordable and property prices were at the lowest levels in years.

“While home ownership is not just about the investment potential, it is still a comparably safe way of investing money and if you hold on to it long enough, history has shown that it will generally appreciate in value over time.”

He said properties were now taking on average between four and six months to sell, and many sellers were willing to negotiate.

Seeff added that homeowners wishing to sell this year would need to price conservatively, and those not in a hurry to sell should wait at least 12 to 18 months.

He said prospective buyers should do their homework and work with a credible estate agent to ensure they made a good investment.

Goslett advised homeowners looking at a holiday home investments to follow the following rules:

* Be sure that the property is situated in a good, popular location – as location is not only important in terms of the capital appreciation over time, but is also an important factor in attracting tenants.

* Be sure that they can afford it. Buyers should calculate 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 as well as the rates, taxes and utility tariffs in the area.

* Consider the practical implications of managing a property in a different town. Goslett suggests that holiday home owners consider appointing a professional rental management company or realtor that can conduct regular inspections and screen, select and place tenants.

* Understand holiday rental trends in the area, especially if rental payments are to be used to help pay off the bond. Rental returns fluctuate widely for holiday homes, depending on the location and the season. However, proximity to the beach and a sea or mountain view makes a big difference to what rental can be charged.

* Know the tax implications. Holiday home investors should remember that any rental income needs to be declared on their annual income tax return. Investors will also be liable for capital gains tax should the property be sold or transferred into another name. - Cape Argus

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