Down by the sea

With weakness appearing in Sorrento property values now might just be the perfect time for investors to snap a beach house or a cliff top mansion in the exclusive resort town.

Softness in the property market since 2003 has had a serious impact on capital growth in metropolitan areas up and down the eastern seaboard. But in the resort town of Sorrento and neighbouring regions on Victoria’s Mornington Peninsula, there are still significant capital gains to be made by savvy investors who do their homework.

Median prices and sales numbers peaked in 2001; since then numbers have tapered off, providing buyers with the perfect entry point into the market.

But before you get too excited, if you are thinking about buying a Sorrento property for the yield, forget about it. PRD Nationwide’s research director, Tim Lawless, explains: “People aren’t buying property in this region for the rental yield because it’s so seasonal. Per annum returns in Sorrento are at around 2%. Investors looking for returns seek upwards of 5%.”

Nevertheless, the capital growth enjoyed by property owners has been more than reasonable even during a period of perceived softness in the market. PRD Nationwide says the growth in median house prices over the five years to 2006 has been 11.6% per annum.

At the pointy end of the market in Sorrento are the clifftop properties that run from Sorrento front beach to Point Franklin. Most of these very individual properties have water frontage. They rarely come on the market and when they do prices start about $2 million.

The homes along this strip are owned by Melbourne’s elite. Trucking magnate Lindsay Fox has had well-documented exchanges with the council over the development of his absolute beachfront property. Former Computershare director Peter Griffiths recently bought a clifftop property in the form of The Real McCoy earlier this year for $6.85 million.

Buyers advocate David Morrell, of Morrell & Koren, says: “People always say that the demand at the top end of the market is still strong but there’s an element of weakness. I helped a client buy a property that was advertised for $2.25 million for $1.9 million just last month.”

Property buyers who just can’t wait long enough for an exclusive clifftop retreat to come on the market might do well to look on the other side of Point Nepean Road, at housing around the Sorrento Golf Course. Properties there are routinely snapped up for a more affordable $800,000 to $1.5 million.

The more recent subdivision around Paringa Road off Hotham Road, is also extremely popular. Some of the region’s more ostentatious homes are found in this area.

Despite the area’s upmarket reputation, about $450,000 will buy you a three-bedroom weatherboard or brick veneer home within walking distance of the main street and beaches. As the managing director of Kay & Burton, Gerry Delaney, explains: “These properties are used for entertaining large groups on weekends and holidays '¦ so properties with three bedrooms typically aren’t sought after.”

Compared with the growth in housing of 11.6% over five years, the median price of units over the same period has risen to 13.5%.

Unlike other resort towns on the eastern seaboard, the Mornington Peninsula Shire maintains strict controls over development, rarely allowing anything above two storeys. However, five years ago the council controversially approved the three-level 36-unit Koonya Apartments, developed by Eric Reinhart.

The 13.5% increase in prices is a consequence of these apartments coming back on the market, which were originally sold off the plan for between $300,000 and $1.5 million. According to property research house RP Data, only three units in the Sorrento postcode of 3943 were sold this year: they went for $517,500, $723,000 and $1.9 million respectively.

Property in this tightly held enclave has always been regarded as prime real estate regardless of what part of the boom-bust cycle we are in. But only recently has the value in the region begun to influence values back along the peninsula towards Melbourne: from neighbouring bayside townships Blairgowrie and Rye and all the way across the other side of the peninsula to beachfront Flinders.

At the top end of the market in Rye, you have properties with bay views being sold for $600,000–700,000. Properties with similar features just minutes up the road in Blairgowrie sell for $1.5–2 million.

For a while in these regions there was an outbreak of “spec houses”, homes constructed with the sole intention of being sold. The values of these houses were among the hardest hit by the recent softness and many can be picked up for a song today. Property can be acquired in these regions for as little as $200,000.

While you may be able to buy enter this property hotspot for less than half a million, it’s important to know just what kinds of properties are in demand. As already covered, houses with four and five bedrooms are much more desirable and offer better prospects for capital prospects.

Of course, once you start entertaining all these people it just won’t do to be queuing up for the bathroom so it makes sense to have more than two. The kids will need somewhere to play so you’ll need more than one living area and the same goes for car spaces.

Auctions remain one of the best ways to test the true market value of a property in this region. Additionally, properties that are passed in give buyers further advantages by letting them now that the market doesn’t support the vendor’s expectations.

But as with any property purchase, due diligence is an important part of any acquisition. Potential buyers should thoroughly acquaint themselves with property values in the areas they wish to buy.

Like most types of discretionary spending, resort property is going to be susceptible to economic downturns. Sorrento will never be immune to cyclical factors but it does appear less vulnerable than other locations.