Holiday Town Property Performance (The Bugle)

The holiday town residential property market came under significant pressure post the 2004-2006 boom years, and now seems to be indicating a return of some price stability according to FNB’s latest property barometer report. Holiday homes are non-essential by nature, which makes holiday home buying far more cyclical than primary residential home buying. The only property class that came under more pressure that holiday homes, was vacant land in holiday towns. In a falling or subdued market, vacant land represents a consistent monthly cost without any occupation benefit and with little scope for capital growth. It is therefore the first to be sold and experiences the largest price decline. The state of holiday town residential markets is a good gauge of the financial strength of the higher income household sector and the level of luxury demand in an economy. 

There has been a marked difference between the house price growth of primary residential home markets (measured by the six main metro areas in the country) and the holiday town home markets. For the 2^nd quarter of 2013 primary markets experienced growth of 6.3% while the holiday town house price index could only manage nominal growth of 1.7%. Once we factor in inflation to adjust these growth rates to real terms, we see holiday home prices in general declining. In real terms the downward correction in the holiday town price levels from the 4^th quarter 2007 peak to the 2^nd quarter of 2013 has been a cumulative -27.5%. The decline in the primary residential markets over the same period has only been 14.7%. So with holiday homes being almost a third cheaper than what they were in the boom times, is it now time to secure that property you have always dreamed of? As every good student of property economics should do, we look at the same price indices over a longer period of time – say from 1999 (almost 15 years) and we then see that there is very little difference in price performance between holiday homes (price growth of 396.2% over the period) and primary residential homes (price growth of 393.6%). So what can we expect in the near term? Primary residential markets will continue to outperform holiday home markets. Currently the estimated holiday property buying as a percentage of all buying is 2%, down from the 5% peak recorded in 2007. Primary residential buying is currently at 89% of all buying, higher than the 80% recorded in 2007. If we consider the volume of transactions recorded in holiday towns we see these are currently at 32% of the boom time peak. The volume of sales of primary residential markets is currently at 52% of the boom time peak. The final reason why primary residential homes will outperform holiday homes in the near term is the substantial increase in holding costs over the past few years in terms of municipal rates and charges. So for a destination like Ballito and the surrounding gated estates and suburbs, the migration to a higher percentage of primary residential homes is very good news for estate agents.

(Author: Andreas Wassenaar, published in The Bugle 14 Aug 2013)