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Ever dreamed of owning a holiday home but have been put off by the high cost and lack of rental return? Or maybe you’ve just returned from Port Douglas or the Gold Coast and have visions of becoming a regular visitor? The solution could be an investment holiday apartment in one of the burgeoning number of resort-style serviced apartment complexes.
Holiday destinations have a particular appeal. After all, that’s why they’re so popular. But purchasing a holiday home as an investment requires careful research and dispassionate decision making.
Before deciding to purchase you should assess the advantages and disadvantages of this form of investing. You should consider:
- capital growth
- demand and occupancy
- management
- returns
- tax.
One reason holiday apartments are so popular is their location. Most are situated in Australia’s fastest growing regional property markets. According to property analysts Residex, prices in popular holiday towns around Australia have boomed over the past few years. Recent examples include:
- Portsea (Vic) up 7.7%
- Surfers Paradise (QLD) up 16%
- Mooloolaba (QLD) up 24%
- Byron Bay (NSW) up 25%
- Sussex Inlet (NSW) up 22%
- Mollymood (NSW) up 17%
- Victor Harbour (SA) up 14%
(Source: Residex. Figures are for the year to March 2003)
While holiday apartments command premium rental in the busy school holiday and Christmas periods, at other times the property could be either vacant or poorly let. The key to maximising your return is ensuring the property is available for rent in these times.
Also keep in mind the volatile nature of the tourist industry. As the recent crisis over Severe Acute Respiratory Syndrome (SARS) demonstrated, demand for holiday accommodation is closely tied to international events and the overall state of the economy. When the economy weakens, holidays are one of the first things families cut back on.
Look for properties in high traffic, high demand areas in blue-chip tourist destinations. Rental returns will be affected by factors such as scarcity, competition and accommodation style. It is important to consider the amount of stock on the market and how your apartment competes with others. In the current climate of rising interest rates, it is also important to consider the impact higher rates would have on your capacity to meet repayments and on overall returns.
Quality management can make or break a holiday investment. Most apartments are marketed or sold with on-site management in place. Depending on the contract, managers are responsible for marketing, day-to-day management and maintenance. Check out the management company (or individual managers) very carefully, ask for past references and inspect other properties they manage.
If purchasing a holiday apartment as an investment you may be eligible to claim tax benefits through negative gearing. Allowable deductions can include reasonable operating expenses such as management fees, maintenance and depreciation. To be eligible, however, the apartment will have to produce regular income and must be a genuine investment. Be aware of ‘hidden’ annual costs such as land tax and keep in mind that you may have to pay capital gains tax once you sell.
When investing in a holiday apartment, remember that lifestyle and returns are intertwined. If you and your family will never use it, there are probably better places to invest. If, however, you want to combine lifestyle with modest investment returns, holiday apartments may be worth considering.
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