12 Oct 2010

Opportunities for Property Investment in Coastal Towns?

An investment property along the coast sounds wonderful and now can come with a much smaller mortgage.

As the warmer months approach and Australians migrate to the coastal towns for a holiday they ponder the idea of investing in property by the sea. Timing is in your favour as mortgage loan to value ratios have increased from the usual 80% to above 90% and in some cases 105%, added to the this a recent fall in coastal house prices.

Rpdata.com research analyst Cameron Kusher says beachside properties have a history of performing well in the past.

“For the past 10 years, house prices in coastal markets have typically seen strong levels of growth,” Kusher says. “Over the last 12 months, however, the performance has been much less impressive.”

In the majority of coastal locations, house prices have recorded annual growth of less than 10% over the last year, according to the RP Data-Rismark Home Value Index results for June 2010.

The largest property value falls occurred in key tourism and sea change markets, such as Cairns (down 2.7%), The Whitsundays (down 2.5%) and the Fraser Coast (down 1.6%).

While this isn’t the best news for those who already own property in those markets, it does provide plenty of opportunities for investors to get into the market. First time property investors will be looking to access the equity in their home to purchase that small piece of paradise whilst the market is in their favour.

It is best to go in with your eyes wide open, however. Investing in coastal property is a long-term proposition, as short-term capital growth is likely to remain sluggish. As well as a decline in the number of retirees and sea-changers moving to coastal areas – impacted by the GFC – the strong Australian dollar is also deterring overseas visitors from coming to Australia, while also making holidaying abroad now more accessible and tempting to Australians.

“Unfortunately, a flow-on effect from this is that slower tourism markets tend to lead to a lack of employment in coastal regions,” Kusher says.

“This then makes it difficult for owners of investment properties, as they are ultimately less likely to be able to find tenants.”

It’s also important to note that rental yields have remained stagnant in these areas.

“Nationally, rental growth has been minimal since the onset of the GFC and most of the coastal markets have reflected this,” Kusher says.

“The majority of suburbs detailed have recorded growth in rents of less than 5% over the year, and a number of regions have even recorded declines in median rents.”

Kusher projects that most coastal markets throughout Australia appear to have reached their lows, and are now on the increase, although growth will be slow in some areas.

“Any significant recovery will likely be slow, if an expected increase in mortgage interest rates becomes imminent,” he says.

“The softness in the tourism sector will also dampen the prospects of significant improvements in most of these markets. Coastal markets with more diversified economies or those linked with the resources sector are likely to have the strongest capital growth prospects over the coming year.”

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