Beach front property values on the mend, Bayleys says

Values for beach front properties in three areas close to Auckland have stabilised and are starting to recover after drops of up to 22% between 2007 and 2009, real estate firm Bayleys says.

Bayleys looked at properties with uninterrupted beach access in the Coromandel, Waiheke Island and Rodney District, where values had fallen by 10%, 14% and 22%, respectively, in the two years to the end of 2009.

“Values in some areas are bouncing back after falling between 2007 and well into 2009,” Bayleys reseach analyist Sarah Davidson said.

“The last 12 months have shown a turnaround in value movements in the three surveyed coastal markets - with the downward correction slowing on the Coromandel Peninsula, and reversing in Rodney District and Waiheke Island," she said.

“Values on the Coromandel have held relatively steady. Rodney values have recovered 15 percentage points of their lost ground, while Waiheke values are back up nine percentage points.

“A combination of a downturn in property markets and the economy meant an adjustment in all real estate prices was inevitable. The recession put pressure on discretionary spending - including the buying of holiday homes - and reduced demand for absolute waterfront and coastal property.”

“The previous surge in demand for coastal property, particularly in the mid 2000s, also resulted in a major increase in developer activity in this sector of the market, as properties such as camping grounds and lifestyle sections were converted to residential lots.

“This led to a marked oversupply of coastal subdivisions which, in combination with reduced demand, resulted in a substantial reduction in prices, with a number of mortgagee sales contributing to this.”

Values for these types of properties - particularly sites in lesser locations away from the beach - had fallen more than absolute waterfront properties, Davidson said.

“The limited number of properties right on the beach and the fact that they are tightly held, often passing from one generation of family owners to the next, has meant their drop in prices has been less pronounced,” she said.

"As a consequence of the exponential value growth over nearly 30 years, absolute waterfront property had proven to be an exceptionally well performing investment vehicle - with annual average capital growth of 13.6% on Waiheke Island, 15.7% on the Coromandel and 17.3% per annum in Rodney District.

“When accounting for inflation, real compound returns on absolute waterfront investments have been between 9.2% and 12.9% per annum, which puts them ahead of returns from many other investments even before taking into account the lifestyle benefits.”.

Davidson said that despite the volatility of values over the past three years, the fundamental factors which underpinned absolute waterfront land values were still present – with limited supply of properties available for purchase right on the water being the major driving factor.

“As such, it is likely that this sector of the property market will continue to outperform the general residential property market,” she said.