How low can prices go?
Bargains abound in holiday home market
IF OWNING a holiday home at Hermanus, Plett or Port Alfred has always been on your list of must haves, there’s currently a window of opportunity to enter South Africa’s second home hot spots at what many believe are rock bottom prices. While the primary residential property market in major cities and towns has recovered quite sharply from year-end 2009 – with price growth back in doubledigit territory – industry players say leisure property prices have continued their downward march.
When Finweek last reported on the state of the leisure property market in December 2009 it was flooded with properties from distressed sellers in the R500 000 to R2,5m price band. At the time, the biggest chunk of sellers were reportedly middle-income earners with easy access to cheap finance during the boom years but who could no longer afford to hold on to second or third properties.
It appears that over the past few months distressed selling has moved increasingly further up the price ladder, with even the super wealthy now trying to offload trophy holiday homes. Rael Levitt, CEO of auctioneers Alliance Group, says leisure property is the only sector in the real estate market where distressed selling continues to rise, with a marked up-tick in holiday homes in the R10m plus bracket coming on to auction floors over recent months.
Levitt ascribes that trend to wealthier property owners being able to hold on to their properties for longer than their less affluent counterparts. But even high net worth investors have been forced to adopt a more prudent approach and are now thinking twice about the costs involved in running a holiday home they may only use once or twice a year.
Levitt says the leisure property market has been squeezed from all sides. On the South African front, demand has been stifled by a combination of stricter mortgage lending, falling house prices and recessioninduced financial stress. At the same time, rand strength has dampened demand for holiday homes among overseas buyers.
Levitt estimates on the Southern Cape coastline – stretching from Mossel Bay to Plettenberg Bay alone – holiday homes worth more than R1bn collectively are currently on the market at asking prices often 30% to 40% below their 2008 peaks. “And not a buyer in sight,” he adds.
Levitt says undeveloped land in second home areas such as Hartbeespoort Dam and many of the newer golf estates are particularly problematic, with prices discounted up to 50% below 2008 prices. Levitt says banks that have repossessed undeveloped land from distressed owners are now selling for as little as 30c in the rand. In other words, if the outstanding mortgage on a stand is R1m, banks are prepared to offload the property at R300 000. Though banks are taking huge losses, at least they’re getting something back, says Levitt.
Property research group Lightstone’s website shows that the housing market in popular inland weekend boltholes such as Clarens and Dullstroom also remains depressed, with average prices down 25% and 14% respectively between January and May 2010 year-on-year.
Although the price crash experienced by the leisure property market is bad news for those forced to sell, it has of course created plenty of bargain-buying opportunities, especially for cash buyers who are first-time entrants to the holiday home market or those nearing retirement with plans to relocate to a coastal area.