North Island coastal property values are surging by as much as 66 percent, new research by OneRoof shows.
Despite a slowdown in sales volumes since 2015 and a rising threat from climate change, coastal properties are still rising in value – and in many cases becoming more up market.
That has put them out of reach for many Kiwis, with OneRoof’s research showing that most second homes in the North Island’s top holiday spots carry a mortgage.
OneRoof and its data partner Valocity examined the property markets in 11 top North Island coastal locations: Whitianga, Whangamata, Pauanui, Tairua, Cooks Beach and Waihi, in the Coromandel; Mount Maunganui, Opotiki, Whakatane, in the Bay of Plenty; Raglan, in Waikato; and Gisborne. Also examined was Taupo, which although not a coastal location does boast a waterside holiday home market similar to the others.
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Median values in the beach towns, with the exception of Gisborne and Opotiki, are all above $300,000. Pauanui and the Mount top the table, boasting median values of $735,000, while Whangamata and Raglan are not far behind at $695,000 and $650,000.
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Across the 12 towns OneRoof and Valocity tracked, the volume of properties sold had dropped from a 2015 peak of 3500 to just 2160 last year. But despite the slowdown, coastal property values are on the rise, increasing over the past four years by a not-bad 35 percent in Cooks Beach to 66 percent in Waihi Beach and 65 percent in Raglan.
Solid performers Mount Maunganui, Whangamata and Whitianga went up 55 to 58 percent.
These are the towns where the bach is no longer a modest crib: in the Mount, median floor size is 158 square metres (up from 140 square metres in 2013), and that’s in a town where nearly one third of the 9600 residences are flats or apartments. Whitianga baches average 140 square metres.
Part of this is that new building surged in the 1990s and 2000s in both those beach towns, while places like Whangamata, Raglan and Whakatane had their surges in the 1980s or even 1970s. Whangamata is also relatively high in flats and apartments, now making up over a quarter of the 4500 buildings.
“The areas with increased flats and apartments generally have a higher number of permanent residents, with demand fuelled by retirees and new market entrants," says James Wilson, Valocity’s director of valuation innovation.
But the data belies the old comfortable Kiwi dream of buying a second property with a bit of surplus cash. A high proportion of properties carry mortgages today - as much as 66 percent in Taupo and Raglan, 62 percent in the Mount - and that’s higher than four years ago. In older beach spots like Whitianga, Pauanui and Cooks Beach only two in five of the properties carry a mortgage, suggesting longer term ownership from the days when prices were nowhere near city levels.
“Increases in properties with active mortgages imply that people are using equity from properties in urban centres to purchase these places,” says Wilson. “Given the history of holiday localities suffering large value declines in weaker economic conditions, people should ensure that they don’t over-extend themselves for the mortgage on a holiday home.”
In the Mount’s key Ocean View and Marine Parade, properties are still moving at points around $2.8 million to over $4 million.
Raglan property prices are surging. Phto / Getty Images
One issue that does not seem to have had an impact on coastal property values is climate change. Despite warnings on the risk exposure of many parts of the country, this is not reflected in buyer behaviour.
NIWA estimates 125,600 buildings, worth some $38 billion, would be at risk if sea levels rose up to one metre. Even with the new normal high spring tides, some 9000 homes are at risk (more than 1300 in Auckland alone).
However, Bayleys Mount Manganui agent Kay Ganley says most people are not aware of climate change risks, and beachfront is still sought after in her patch. “Most people think it’s not going to happen in their time. People are not aware of it.”
In Whangamata, First National’s Gordon Turner finds buyers are similarly unconcerned. “We don’t have that many beach front sales come up, and I’ve not had one single person make a comment to me with regards to climate change,” he says. “It’s a volatile subject, but ignorance is bliss.”
Kyle Leuthart, of LJ Hooker, in Raglan, says that any worries about coastal risks are not affecting values. Indeed, record prices have been achieved this summer on the prime Wallis Street strip, he says.
He point out that agents and vendors are careful to disclose properties that are in the wet spots, vulnerable to flooding in a combination of high spring or king tides, storm surges and high winds. “But Wallis is high enough not to be a flood risk, and property there doesn’t come up very often, so sells well,” Leuthart says.
With the Reserve Bank clearly signalling to banks that their risk assessments now need to take into account sea level rises, as well as other climate change-related damage, bank risk officers are expected to look at these risks over a longer period of time.
Right now, says Peter Thomas, BNZ’s chief credit officer, the bank relies on hazard information on a property LIM. But as insurers look more closely at risks, he expects that this will also extend into how loans are assessed.
“Much of the reliable data needed to make informed decisions is just now becoming available, and it’s realistic to consider the basis of assessment will change over the medium term,” Thomas says.
BNZ chief economist Tony Alexander says at some stage an event will change expectations. “Perhaps an ice-shelf collapse or permanent ponding of water following a substantial storm,” he says.
“Well before councils start talking about withdrawing services from low lying locations and placing special rates levies on coastal properties, well before insurance companies withdraw coverage for at risk locations, the market will start pricing such properties lower . We are not there yet in New Zealand.
“But very likely one day an event will occur which brings fear of the effects of rising sea levels. It is just a matter of time before the pricing responds for coastal houses – downward for those at inundation risk, but potentially upward for those on the coast at no risk.”
