Holiday Home Nation Com

The nation's passion for property is undiminished by the summer break, say estate agents. They're getting inquiries from renters who have fallen in love with the location and decided it would make an ideal getaway for friends and family.

Strong demand

Steve Gillbee, a retiree who is downsizing from his bayside family home in McCrae, about 90 kilometres south-west of Melbourne, says there were 3500 online viewings of the property during its first week's marketing.

Gillbee's four-bedroom home has panoramic views of Port Phillip Bay and is expected to sell for more than $3 million.

"January is our biggest time of the year," says Grant McConnell, director of Belle Property, who is selling the property.

"Demand is strong, everything is selling," McConnell says, adding that a 15 square metre beach box in McCrae recently sold for more than $500,000.

In Portsea, Liz Jensen, a director of Kay & Burton, says while summer usually attracts many speculative inquiries from holidaymakers, this year more are ready to buy.

"There are fewer ice-cream lickers and more ready to take a big bite," Jensen says about second-home buyers looking for prestige property and ready to pay whatever it takes.

Check costs

National property prices increased more than 20 per cent last year, with demand particularly strong in regional centres with unique features such as proximity to the coast and an easy commute to central business districts.

But widespread expectations of slowing growth make it even more important for holiday buyers to be sure about their reasons for buying, to know what is affordable and consider upfront and ongoing costs.

Alex Jamieson, a founder of AJ Financial Planning, says that means deciding whether it is a lifestyle choice or an investment decision. The latter requires an understanding of rental markets, management, borrowing rates and tax.

"Holiday tenants' expectations are tremendously high," says Jamieson. "A beat-up holiday shack with grubby furniture is not going to be a success.

"We are seeing people having to spend tens of thousands of dollars to get properties into shape for renting, plus maintenance costs caused by theft and wear and tear."

Other costs include insurance, council taxes, energy bills, general maintenance, gardening and cleaning plus unexpected problems, such as lost keys, that take time, energy and money to set right.

Management and maintenance costs are typically around 20 per cent of rentals, say property specialists.

For an investment property to be a strong performer, it needs to be in a prime location, particularly to attract renters during the off-season, which means proximity to amenities, views of the water and tourist attractions.

"COVID-19 has triggered a huge increase in demand for properties away from central business districts, but the question is whether it will be sustainable as conditions ease," Jamieson says.

Moran, who has started renovations on his Launceston property, says before buying he calculated the cost of running his second home, potential short-term income, tax deductions and its impact on his lifestyle and retirement income.

Holiday house will not compromise retirement plans, says Paul Moran. Arsineh Houspian

"Peak season holiday income will broadly cover costs," he says, adding that it will have no impact on other lifestyle issues, such as overseas holidays.

Don't pay too much

Price increases could also slow as "storm clouds" threaten the property boom, according to Shane Oliver, AMP Capital chief economist and head of investment strategy.

A downswing is expected, Oliver says, because high prices are forcing buyers out of the market. He also cites rising mortgage rates, higher interest serviceability buffers and the likelihood of additional macro-prudential controls to slow borrowing.

Michael Baumann, CBA's executive general manager for home buying, says holiday home deposit and borrowing criteria are the same as for an owner-occupier or investment property. "The borrower needs to demonstrate they can service the loan," Baumann adds.

Investment loans typically have higher rates, according to Canstar, which monitors mortgage costs.

Tax issues

ATO officials repeatedly warn that holiday property claims are a key target because of increased property investment, the boom in home offices and the impact of COVID-19 on rental claims.

Mark Chapman, tax director at H & R Block, says: "You can deduct from your annual income any amounts that were incurred in deriving that income. This could include rental and agency fees (such as letting fees paid to Airbnb and others), plus property repairs, insurance, depreciation, and mortgage interest."

But expenses can only be deducted for periods the property was genuinely available for rent. "You can't claim for periods of personal use, periods where the property is being used by family and friends free of charge or periods when the property is left deliberately vacant," Chapman adds.

There is also capital gains tax liability when the property is sold.

The calculation is based on the difference between the sale price and the cost base (which includes the cost of purchase and associated expenses such as legal fees, and renovations).

Those who've owned a property for more than 12 months qualify for a 50 per CGT discount.

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Source: https://www.afr.com/wealth/personal-finance/stakes-are-higher-in-holiday-home-dream-20220104-p59lsu

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