How low can prices go?

Bar­gains abound in hol­i­day home mar­ket

Finweek English Edition - - INSIGHT -

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.

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