Beach-front real estate values show signs of stabilising and recovering

Absolute waterfront property values which dropped in 2008 and 2009 have either stabilized or are showing signs of improvement again this year, according to latest real estate research.

Data compiled from three of the Upper North Island’s biggest waterfront property markets shows that the downward valuation corrections which occurred in 2008 and 2009 followed phenomenal growth in prices over the previous 10 years - with the underlying land value in the three major markets measured exhibiting three-fold increases.

The data – compiled by Bayleys Research – encompasses sales statistics from beaches on the Coromandel Peninsula, Waiheke Island, and Rodney District just north of Auckland.

Bayleys Research analyst Sarah Davidson said the two years to the end of 2009 showed a significant drop in absolute waterfront land value with average prices falling between 10% and 22% from their 2007 peak.

Bayleys Research’s Absolute Waterfront Value Index has been tracking value movements for the past 28 years in the three popular coastal destinations. The index tracks the underlying land value (net of improvements) of property which is situated closest to the waterfront with uninterrupted access to the beach. Data is drawn from sales and valuation information.

Ms Davidson said the index had tracked varying degrees of downward price corrections in the three regions.

• Coromandel Peninsula waterfront property - which was the most affordable of the three areas surveyed - showed the smallest value correction, falling 10%.
• Property on Waiheke Island showed a falling value correction of 14% over the same period.
• In the Rodney District, where waterfront property was most highly valued, the downward correction was 22%.

However, over the past year, values in Rodney and Waiheke had recovered much of

that lost ground, while values had stabilised on the Coromandel Peninsula.

“Values in some areas are bouncing back after falling between 2007 and well into 2009,” Ms Davidson said in the company’s latest Waterfront magazine.

“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.

“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,” Ms Davidson said.
“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.”

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

“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,” Ms Davidson said.

Ms Davidson said that despite the volatility of values over the past three years, the fundamental factors which underpin 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.