As Australians head out of the cities and descend on beachside (or even mountain destinations) around the country, relaxing and rejoicing in a break from work, many will engage in imagining or even seriously considering the purchase of a holiday home. Whether that be a modest shack in Bright or Phillip Island, an apartment on the Gold Coast, something in between or even more grand.
Investing in a holiday home has long been a cherished aspiration for many Australians, offering the allure of a personal retreat coupled with potential financial benefits. However, as we navigate through 2025, it’s essential to evaluate the advantages and disadvantages of such an investment within the current economic and property market landscape. This article will explore the pros and cons of buying a holiday home to help you make an informed decision.
Pros of Buying a Holiday Home
Personal Retreat and Lifestyle Enhancement
Owning a holiday home provides a private sanctuary for relaxation and leisure, eliminating the need for advance bookings or accommodation expenses during vacations. It offers the convenience of spontaneous getaways and the comfort of a familiar environment tailored to your preferences. You can kit out the property so you don’t have to pack & transport everything you need when you go on holiday
Potential Rental Income
When not in personal use, holiday homes can be rented out to generate supplementary income. Platforms like Airbnb and Stayz have simplified the process of listing properties for short-term rentals, potentially yielding higher returns during peak tourist seasons.
Capital Growth Opportunities
Properties in desirable holiday destinations may appreciate over time, contributing to long-term wealth accumulation. For instance, certain Australian cities are projected to experience significant property price growth in 2025, with locations in QLD leading the forecasted increases.
Tax Benefits
Expenses related to the maintenance and management of a holiday home may be tax-deductible when the property is rented out or available for rent. It’s advisable to consult with a tax professional to understand the specific deductions (and proportion of the expense deductible) applicable to your situation.
Future Retirement Option
A holiday home can serve as a future retirement residence, allowing you to become acquainted with the community and amenities beforehand. This foresight can facilitate a smoother transition into retirement living.
Cons of Buying a Holiday Home
Lifestyle Over Investment
Typically holiday homes are prized for lifestyle but do not make the ideal investment selection (for many of the reasons discussed below). That is fine so long as you are clear about that and can afford the investment you are making.
Seasonal Rental Demand and Income Variability
Rental income from holiday homes is often seasonal, with peak periods yielding higher returns and off-peak times resulting in vacancies. This fluctuation can lead to inconsistent income streams, complicating financial planning. Also, peak rental demand may coincide with when you would want to use the property for yourself.
Maintenance and Management Challenges
Holiday homes require regular upkeep to remain appealing to renters, including cleaning, repairs, and landscaping. If the property is located far from your primary residence, managing these tasks can be cumbersome and may necessitate hiring local property management services, adding to the overall costs.
Market Volatility and Economic Sensitivity
The value of holiday properties can be more volatile compared to primary residences, often influenced by broader economic conditions. Economic downturns or shifts in tourism trends can adversely affect property values and rental demand. Property prices in traditional holiday locations are often the first to be hit in an economic downturn with people selling their holiday homes to ensure they can manage financially.
Financing and Insurance Considerations
Securing financing for a holiday home may involve stricter lending criteria, such as higher deposit requirements or less favourable loan terms. Additionally, insurance premiums for holiday homes can be higher, especially in areas prone to natural disasters like bushfires or floods.
Legal and Regulatory Compliance
Short-term rentals are subject to varying regulations across different states and municipalities. It’s crucial to be aware of local laws governing holiday rentals, including restrictions on rental durations and registration requirements, to ensure compliance and avoid potential fines.
For example, in Sept 2024 Byron Bay council introduced a 60 day max short-term rental cap on properties other than those in small designated precincts (or where the host also lives on the property). Other localities may have similar restrictions or look to bring them in (significantly impacting your financial plans to afford the property and even the long-term value of it).
Changes in the law
In calculating the affordability or merits of a holiday home you may be assuming that the current regulatory environment or tax laws remain in place. Changes in the law are always possible (as seen by constant debate on the merits of negative gearing by politicians). How would a negative change in the law impact both your ability to afford the property and its value?
Impact on how you spend your time
Once you buy a holiday home there will be the sense that you need to go there and use it to justify the expenditure you have made and this can restrict you going to explore different/new places.
Current Market Trends in 2025
As of January 2025, the Australian property market exhibits diverse trends across regions:
- Price Fluctuations: While some areas have experienced slight declines in property values, others, particularly certain cities, are anticipated to see substantial growth. For example, Townsville is predicted to lead the property market with potential price increases of up to 30% in 2025.
- Interest Rates: Interest rates have remained steady since November 2023, with no immediate rate cuts expected. This stability influences borrowing costs and, consequently, buyer demand and property prices.
- Supply and Demand Dynamics: An increase in property listings has provided buyers with more options, contributing to a slowdown in price growth in certain regions. However, demand remains robust in areas with strong economic prospects and infrastructure development.
Final Word
Purchasing a holiday home in Australia presents a blend of lifestyle benefits and investment opportunities, accompanied by inherent challenges and risks. Prospective buyers should conduct thorough research, assess their financial capacity, and consider market conditions specific to their desired location. Engaging with financial advisors and property professionals can provide valuable insights, enabling informed decisions that align with both personal and financial objectives.