Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2016-02-19

Holiday towns in South Africa typically benefit more than proportionately in good times when prices of holiday homes tend to grow faster than your typical metro areas characterized by primary residences. However, as money becomes tighter and the economic environment shows signs of becoming tougher, the price growth of holiday homes tends to underperform the rest of the market. The cyclical nature of residential property price growth is therefore more accentuated in areas regarded as holiday-home towns. The boom period of 2006 demonstrated this with holiday home price inflation peaking at 57.3% before plummeting to negative figures for an extended period of time from 2009 to 2013.

The more recent resurgence we saw in 2014 to 2015 peaked at price growth of 12%, but soon tapered back down to 1.6% by the 4th quarter of 2015. At the same time the price growth across the major metros has been a far more positive 5.6%. It is the fundamental non-essential nature of holiday homes that make their demand and therefore price growth more cyclical. Over a longer period of 16 years since 1999, it is interesting to note that holiday homes and major metro areas have escalated at reasonably similar amounts, with the FNB Holiday Town Index up by 542.2% over this period as compared to the 527% growth in the major metro price index. For those of us that work in areas dominated by holiday home sales it is sometimes surprising to realize that the overall national estimated holiday home residences sales as a percentage of total residential property sales is currently estimated to be as low as 2%.

At the same time we have seen the upper income segment of the property market coming under relatively more pressure than the rest of the market with FNB Estate Agent survey results reporting recently that High Net Worth area segment showing the most noticeable softening in reported activity levels. Average house prices in the upper income area segment has slowed from 10.2% in the 3rd quarter of 2014 to 5.1% in the 4th quarter of 2015. The strongest growth is currently being seen in the middle-income market with average price growth of 6.7%. The lower income areas are currently showing price growth of 5.5%. There is therefore a shift in relative strength of the upper end of the market to the lower end of the market. The question however remains on the sustainability of the strength of the lower end of the market given the general weaker macro-economic environment.

When we consider that holiday home demand is weakening and that the higher end of the market is in general also facing headwinds, then it would be fair to say that the top end of the holiday market can be expected to come under increasing pressure over the rest of this year. For those areas that attract foreign buyers, such as the Atlantic Seaboard in Cape Town or locally Zimbali Coastal Resort, the dramatic depreciation of the Rand exchange rate over the past year may go some way to stimulate demand for these higher end properties which now seem enticingly good value to somebody doing their price calculation in US dollars, Euros or Pounds.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com

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