Despite the reducing investment appetite, the demand for holiday homes continues to remain buoyant amongst property investors.
According to the FNB Holiday Town House Price Index for February 2018, the demand for holiday homes has remained reasonably buoyant since 2013. After losing some growth momentum earlier in 2017, there has been a renewed year-on-year growth acceleration, demonstrated through the results of the last two quarters of 2017.
Praven Subbramoney, CEO of Private Bank Lending at FNB, says many property investors consider purchasing a holiday home to either diversify their source of income or to use as an “escapism haven”.
“However, unlike other types of investment properties available, there are a number of unique factors that should be considered when investing in a holiday home,” says Subbramoney.
Subbramoney elaborates on these factors:
As with any other investment, holiday homes often attract maintenance costs. However, these are to ensure that they establish and maintain a competitive edge, remain well kept when vacant (if not in the rental market), as well as to meet potential tenant needs and expectations.
2. Rental income
It is important to consider that, with holiday homes, the stream of income is not steady but seasonal. This could be influenced by corporate and private interest, public holidays or big events, amongst others. Therefore, it is essential to plan in advance and determine how to make up for the loss of income when the property is not occupied.
Location can help attract the right calibre of tenants willing to pay a suitable rental. For example, people who go on holiday at the coast predominantly opt for accommodation that has a good view of the sea and is close to amenities and entertainment options.
Investors who are also planning to use the property for their leisure need to ensure that they communicate with their rental agent well in advance that the home is not available for rental during their stay. This, however, will result in the loss of rental income when done over a peak season.
When considering attaining and retaining one’s investment, Subbramoney adds that, “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”.