Property Talk

Author: Andreas Wassenaar
Date: 2016-05-20

The holiday town market in South Africa is beginning to show signs of slower price growth as this market comes under pressure from tighter macro-economic conditions. The non-essential nature of holiday homes ensures that as soon as general economic conditions deteriorate, people tend to want to dispose of their leisure properties. We can therefore expect the holiday towns market to underperform relative to the major metro markets in terms of price growth over the next two years. FNB have put together the Holiday Towns House Price Index from deeds office data within towns that are strongly holiday property driven. Parts of Ballito would qualify on this basis. An analysis of this series indicates solid price growth performance through 2014 until early 2015 was experienced within the holiday towns property market. However by the first quarter of 2016 the Holiday Towns Price Index was down -4.1. This is the first quarter of year-on-year decline since the 1st quarter of 2012. At the same time the more primary residential property markets of the major metro areas have experienced growth of +4,5% in the first quarter of 2016. The peak of holiday town demand was reached in the final quarter of 2014 with prices growing by 11,4%. Believe it or not, the Holiday Home Price Index peaked at +57,5% during the boom period of 2005. With hindsight perfect timing would have indicated purchasing in December 2002 and selling three years later in December 2005. Had you managed to time the market correctly over this key period, impressive profits could have been made by trading holiday homes. Often the hardest part is deciding when to sell. At any given time, sellers will always think their properties are worth more than the buyers are willing to pay. A thousand years from now this basic fundamental will still apply.

An interesting comparison of the Holiday Town Price Index and the Major Metros Price Index starting from 1999, indicates that the pricing moved closely together until 2005 when holiday home demand sky-rocketed and with it the relative pricing of holiday homes. For the ten years from 2005 to 2015 the Holiday Home Price Index has on average exceeded the Major Metros Price Index. However the recent decline in holiday home demand has caused the Holiday Home Price Index to dip below the Major Metros Price Index. The cumulative growth of the two indices since 1999 has therefore ended up 17 years later to be incredibly similar. The Holiday Town Index having grown by 521,4% and the Major Metros Index by a slightly stronger 537%. One aspect to note however is that the price growth of holiday homes is significantly more cyclical than the more primary residential home markets. The medium term (three year) prediction is that holiday home prices will underperform the major metro primary residential markets. This is good news for those folks in the market looking to buy a holiday home as there is every indication that you will be able to negotiate a good price.

What we are experiencing in Ballito is a migration from a historically holiday home driven market to a far more primary residential market. This is encouraging and presents a great opportunity for estate agents within our area to service both markets.

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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