Holiday homes have always been questionable as investments, with risks heightened during a downturn often outweighing the returns.

But now the shift to working from home and the lack of international travel might be changing that equation.

"Historically during economic downturns, the holiday areas suffer the most, although that may change as people have realised in this COVID environment that they could easily work anywhere in the world due to modern technology," said tax expert Adrian Raftery.

This and the lack of travel have driven Julia Maguire and Andrew Spira to buy a holiday home in Shoal Bay, Port Stephens, about 2½ hours north of Sydney.

"We bought a holiday house purely because of COVID and because we could no longer travel overseas or interstate," said Ms Maguire, co-founder and executive director of The Capital Network.

"Our business is set up for us to be able to work from home, and given the change to a remote workforce, we saw the opportunity to have a holiday home or an alternative residence where we can enjoy the best of both worlds and continue to grow our businesses."

Mr Spira, who runs Pineapple Funding, a lender targeting small and medium businesses, said while they were not planning to rent out the holiday home, they were counting on values to rise over the long term as more buyers like them moved into the area.

"We believe iconic and accessible holiday spots with good infrastructure such as Port Stephens will deliver a good return on investment due to pent-up demand as a result of remote working," he said.

"I can't see people going back to offices in the city for a very long time, so I expect a lot of people to move out to the regions, which is going to push prices up in areas within driving distance to the CBD."

The rush to buy

The rush to buy a holiday home has already started pushing prices up in popular destinations such as Byron Bay in NSW, the Whitsundays and Huon Valley in Tasmania, PRD chief economist Diaswati Mardiasmo said.

During the three months ending September 10, median house prices surged 41 per cent in Byron Bay and 15 per cent in Huon Valley, compared with the first quarter of 2020, the PRD data showed.

Unit prices in the Whitsundays jumped 28 per cent, while the Southern Highlands in NSW racked up a 23 per cent rise.

"Vacancy rates are really tight in these areas – all are under 3 per cent and some are under 1 per cent, so the chances of you being able to have a holiday home that you yourself can use, as well as it being rented out, is high," Dr Mardiasmo said.

"It's kind of a win-win situation."

Risks remains

Even so, many holiday towns typically do not perform as well as non-tourist areas from an investment point of view, said Destiny Financial Solutions founder Margaret Lomas.

"A holiday home is far less likely to contribute to your overall wealth than other property investments, even though it may contribute to your lifestyle while you own it," she said.

"It attracts a range of taxes because it's not your primary residence, and it's costly to maintain. In recessionary times, when people aren’t travelling, the income can suffer too, so you end up with a property with poor cash flow that doesn’t grow in value, in an area that you are tired of holidaying to."

Ms Lomas said investors should avoid rushing to buy one, as the risks remained heightened despite the strong buyer and renter demand.

"Holiday areas are seeing artificially high occupancy as overseas travel has been halted and everyone is holidaying in their own backyard," she said.

"This won’t last and the short-term pressures might make an average investment look far better than it will turn out to be. Now is not the time to buy holiday homes."

Original article published by The Australian Financial Review here on 18 September 2020.