Research
WATERFRONT PROPERTY REVIEW
October 2007
By Ian Little, and Sarah Davidson, Research Analysts, Bayleys Research
APPEAL OF WATERFRONT PROPERTY UNDIMINISHED
Whether it is for occasional holiday use, as a permanent residence or purely as an investment, absolute waterfront property continues to be amongst the most sought after, and tightly held, in the country. This desire for waterfront property is a combination of factors which has continued to drive values upward according to the latest Bayleys Research survey.
The differentiation between absolute waterfront property and the wider coastal market is becoming greater as the general residential market cools. While well located property within coastal subdivisions continues to sell well it is increasingly clear that vendors are having to price their product realistically as purchasers are unwilling to pay a price premium for property set back from the water.
Bayleys Research has tracked the movement in the value of stand alone absolute waterfront sections on a number of sample beaches since 1982. The beaches are located in the Coromandel Peninsula, Waiheke Island and the Rodney district. The figures are drawn from actual sales, and market reports from agents and valuers working within the areas.
In some cases where there have been few or no sales of absolute waterfront sites, the value of land is estimated from the sale of improved land. In many cases it is agreed that the value of an old bach is negligible as the purchaser plans to redevelop the site immediately upon purchase. Therefore, the underlying land value is what drives the final purchase price.
As the graph above illustrates, further significant capital appreciation has occurred over the last year continuing the trend apparent since the mid 1990’s. Reports from agents and valuers confirm that in a majority of popular beachfront locations, property on the water is tightly held, often by family trusts, ensuring that the amount of property brought to market is insufficient to meet the demand of purchasers, thereby maintaining pressure on prices. Agents have reported there being ”waiting lists” for waterfront property within prime locations with prospective purchasers willing to pay premium prices should waterfront property within specified areas come to market.
The long term performance of waterfront property is shown in the accompanying table. Between 1982 and 2007, the annual average compound value growth for absolute waterfront property in the areas surveyed has been between 18.6% and 20.1% during which time compound inflation has been 4.3% resulting in compound real returns of between 14.17% and 15.58%.
While the economy and residential markets seem set to cool further over the next year, the prospects for waterfront property remain positive. The rural sector is enjoying a combination of factors such as record commodity prices, a weakening New Zealand dollar and a forecast record dairy payout which will see farm gate incomes increasingly significantly. By way of example the latest forecast payout from Fonterra would increase the average income of participating farmers by over $200,000 compared with last season. This is likely to see a surge in interest in waterfront property, particularly in areas close to the main farming centres, such as the Coromandel.
REGIONAL SNAPSHOT
Reports from agents throughout the country dealing in some of the largest waterfront markets report mixed results over the last 12 months with regard to market activity. While some areas have flourished with growth in both market activity and property prices, other markets have noted a slow down in the face of an uncertain economy. One trend remains the same, which is that premium prices continue to be paid for absolute waterfront land while values fall away sharply as you move away from the water.
Hibiscus Coast
Uncertainty in the economy has not appeared to have encumbered market activity in the Hibiscus Coast and evidence suggests that activity has picked up over the last 12 months. An absolute waterfront section in the Hibiscus Coast will sell for around $2.5 million. Within an easy commute to Auckland, the Hibiscus Coast attracts the interest of a range of people, from Aucklanders to overseas-based buyers.
Waiheke Island
Waiheke Island has become a popular waterfront location, attracting people both nationally and internationally, who are keen to remain close to Auckland City, but maintain a more relaxed lifestyle. A large proportion of Waiheke Island subdivisions developed recently comprise of larger sized lifestyle blocks catering to this type of purchaser.
Coromandel Peninsula
The Coromandel Peninsula is a popular holiday destination providing plenty of options with many coastal towns. Anecdotal evidence suggests that certain areas along the eastern coast have experienced sharp increases in price due to the finite amount of waterfront land available. In this regard, most major settlements throughout the Coromandel Peninsula have experienced upward movement in absolute waterfront section values, where an absolute waterfront property would expect to sell for around $1.4 million depending on the beach on which it is located.
Tauranga
This Bay of Plenty city boasts vast amounts of waterfront land due to the many waterways throughout the city. Market activity is starting to slow down in the waterfront sector, which is in a large part attributable to the low levels of stock, as a result of fewer waterfront properties being brought to market. An indicative sale price for absolute waterfront property is in excess of $1 million, with discounts for one and two back being 30% and 50% respectively.
Mt Maunganui
A shortage of supply of waterfront property in Mt Maunganui has kept upward pressure on prices in the area. Mt Maunganui is a narrow peninsula with little room to spread, resulting in more intensive developments in the form of apartments. A section on the waterfront will fetch around $1.8 million. Further back, a property one back from the waterfront will fetch around 35% of this value and two back around 25%.
Rotorua Lakes
The many lakes around Rotorua provide a vast array of waterfront options, although value of land varies greatly between the different lakes. The variance on a greenfield site on the lake shores could fetch from $500,000 up to $1.25 million. Access to the lake is another factor in the value of a lakefront property. A low level of offerings being brought to market and the quality of these has slowed market activity down recently, as purchasers are increasingly showing preference for sites with high standard residence.
Taupo
Taupo is well known to tourists, both nationally and internationally, attracting people year round. Its popularity has prompted development of apartments along the lake front in recent years. Over the last 12 months, activity has slowed and no huge movement in property values has occured, however waterfront properties are still commanding around $1 million. Properties one back will sell for around 50% of this price and two back for 25% of absolute waterfront property.
New Plymouth
Somewhat more affordable than other waterfront markets throughout the country, New Plymouth provides a plethora of adventure activities, many of which are centred on the scenic coastline. An indicative value of a section in New Plymouth, providing direct access to the waterfront is $500,000, with the discount for a section one and two back being 10% and 20% respectively. Local agents suggest market activity is slowing due to uncertainty in the current economic environment.
Queenstown
Within the fastest growing district in the country, Queenstown is famous worldwide as an alpine holiday destination. It is the town’s popularity which has been driving many luxury developments around the area, many of which are on the shores of the pristine Lake Wakatipu. An absolute waterfront section in Queenstown will expect to sell for around $1.2 million.
