Seaside Hotspots

You've heard it a thousand times: the story of the investor who paid next to nothing for a little beach shack that is now worth a fortune.

Plenty of holiday areas have boomed. In Torquay, for example, 90 kilometres south-west of Melbourne, the median house price has risen from $150,000 in 1999 to $365,000 in 2004; and on Queensland’s Gold Coast, the median house value has jumped from $174,000 in 1996 to $380,000 earlier this year.

Every state has its seaside boom town, from Eagle Bay in Western Australia to Hervey Bay in Queensland. But where are the hot prospects for the future?

By definition you haven't heard of the them yet but they exist, sometimes nestled across the water from high-priced resorts or tucked away at the end of unsealed roads.

The good news is that there are still affordable holiday home destinations '” you just need to know how find them. To lend a helping hand, we’ve scoured the coastline and talked to local experts to find the holiday locations “most likely”.

So where are these undervalued areas, what’s the appeal, and how much will you have to pay to get in? Read on to find out.

BARGARA, Queensland
Where: 13 kilometres from Bundaberg and 400 kilometres north of Brisbane.
Why: Quiet seaside town with two surf beaches, a marine park and golf course.
How much: Entry level about $350,000 for a brick veneer house.

Expert’s tip: Paul Broad, a senior consultant at Brisbane-based Matusik Property Insights, is placing his bets with Bargara, a small coastal township a short drive from the sugar town of Bundaberg.

“Bargara has always been popular with the local market,” he says. “But with the advent of cheaper airfares and direct flights to Bundaberg, it’s becoming more sought-after by Brisbane and Sydney buyers.

Broad is touting Bargara as the next Hervey Bay (the popular whale-watching beach town). “The desire for coastal living became stronger during the 1990s and Hervey Bay boomed, while its larger inland neighbour, Maryborough, began to decline in population. The same could well happen with Bargara and the sugar town of Bundaberg.”

He says Bargara properties are still very affordable, with median prices around the $350,000 mark. “Ocean front houses and townhouses sell for around half a million,” he says, “so there’s still enormous upside compared with many other coastal areas.”

As you would expect in a seaside town, rental income in Bargara depends on who’s leasing the properties, and whether it’s a peak holiday time. As a guide, expect about $200 a week for permanent tenants and $400–500 a week for holidaymakers.

RAINBOW BEACH, Queensland
Where: South-east Queensland, 700 metres from Fraser Island and 265 kilometres north of Brisbane.
Why: Fishing, four-wheel driving, coloured sands, barge access to Fraser Island.
How much: Entry level for brick veneer house $450,000–500,000.

Expert’s tip: With a permanent population of about 1000 and within coo-ee of the southern tip of world heritage-listed Fraser Island, Rainbow Beach could be the “next big thing” in south-east Queensland.

“Rainbow Beach has lain dormant in terms of development for years; a lot of the houses are still the original beach shacks,” says Scott McGeever of Brisbane-based Property Searchers.

But if the planned road comes through from Noosa, it will increase the convenience of Rainbow Beach and therefore its desirability as a holiday destination. This gives the area strong growth potential.”

Rainbow Beach is unusual among seaside towns; there’s no absolute waterfront property because a 100-metre wide strip of Crown land runs right along the beachfront.

Properties at Rainbow Beach start around $500,000 for a three-bedroom brick veneer house. Entry level prices jump to $800,000 as you get closer to the water. Because of the moratorium on beachfront development, properties with ocean views are rare. This increases the asking price of ocean-view properties to about $2 million.

The closer a property is to the water, the higher the rental it can command. For properties up to a kilometre from the water, expect $250–500 a week rentals in the off-peak season, and $600–700 a week in the high season. Properties closer to the beachfront attract $1100–1200 a week in the high season.

And what of the better known tourist destinations such as the Gold and Sunshine Coasts?

Most of the Gold Coast is booming but some pockets have been forgotten to some extent,” Broad says. With a strong contingent (about 60%) of owner-occupiers and limited high-rise buildings, Biggera Waters in the north and Palm Beach/Kirra in the south could become lucrative tracts of real estate in the near future.

Further north, the outlook is less positive, at least in the short to medium term. “The Sunshine Coast market is struggling,” Broad says. “New apartment projects are selling very slowly because their prices have moved too far ahead of resale prices.”

Broad believes traffic problems are also curbing growth potential. “The Bruce Highway is stretched to full capacity, so the Sunshine Coast is no longer as attractive as a quick weekend getaway destination for Brisbane residents.”

However, he retains a degree of faith. “The Sunshine Coast is a very cyclical market and right now, the shutters are down. But it will always be popular in the longer term. The beach is still king.”

CABARITA BEACH, POTTSVILLE, KINGSCLIFF, New South Wales
Where: Far northern NSW, about two-hours’ drive from Brisbane.
Why: Clean surf beaches, quiet and underdeveloped compared with Gold Coast/Tweed; close to Coolangatta Airport.
How much: Entry level $400,000, rising to $5 million.

Scott McGeever also favours the seaside hamlets of Cabarita Beach, and nearby Pottsville and Kingscliff in far northern NSW. Popular with families for some years as camping destinations, these areas are quieter and less developed than the Gold Coast and Byron Bay.

The short driving distance (15 minutes from Coolangatta Airport, 30 minutes from Byron Bay and less than two hours from Brisbane) is creating strong demand. Yet there’s still considerable upside.

“For example, I know of a property at Cabarita Beach that’s just 100 metres from the beach. The owners are asking about $500,000, yet the land is big enough that an investor could subdivide and redevelop it with two or three townhouses. That’s potentially a great return for a modest initial outlay.”

Entry level at Cabarita Beach is about $400,000 for a basic holiday shack, rising to $5 million for some beachfront properties.

In Pottsville, you’re looking at about $500,000 for a near-new house; while Kingscliff provides opportunities under $500,000 for a brick veneer house five minutes’ walk from the beach.

Rental income in the Cabarita Beach, Pottsville and Kingscliff districts range from $250–1000 a week during off-peak times, to $800–2000 during peak seasons.

KILLCARE, New South Wales
Where: Opposite Palm Beach, 75 minutes’ drive north of Sydney.
Why: Quiet and private town of 1400 permanent residents; surf beach and bay access.
How much: Houses $600,000 plus.

Expert’s tip: Further south, the quiet hamlet of Killcare is recommended by Dennis Kalofonos, director of Sydney-based Property Finders.

“Killcare has a surf beach on one side and Hardys Bay for boating and watersports on the other,” he says. “Yet it’s more of a passive beachside suburb than a tourist mecca. It’s slightly out of the way, because you have to drive up the highway from Sydney then double back. Privacy is one of the town’s biggest assets.”

Kalofonos believes that although there has been a lot of new development in the area, there’s still a way to go. “Prices have doubled in past few years but I believe that in another five years they’ll double again '” if not more.”

Modest sized houses in Killcare sell for $600,000–1 million; larger properties command as much as $5 million. Rents range from $350 to $1200 a week for a basic holiday home.

For the record, Kalofonos is putting his money where his mouth is. “My family has owned a house in Killcare since 1989. “When my sister and I renovated it four years ago, we had an offer of $750,000. More recently, someone offered $1.5 million. That’s great capital growth; too bad I’m not selling!”

McCRAE, Victoria
Where: Mornington Peninsula, 60 kilometres south-east of Melbourne.
Why: Proximity to Melbourne; undervalued compared with other Peninsula locations.
How much: Entry level $350,000 for a basic shack (no beach views); $600,000-plus (distant water views).

Expert’s tip: A quiet revolution is taking place on the Mornington Peninsula, Melbourne’s holiday playground. “Melburnians have traditionally gravitated towards Sorrento and Portsea on the eastern side of Port Phillip Bay, or Torquay, Anglesea and Lorne on the western side,” says Gerald Delaney, director of Kay & Burton.

Now that these areas have become much busier and almost suburban in their social fabric, people are looking to buy where life is quieter.

“These areas don’t always have golf courses, tennis courts, restaurants and other popular facilities right on their doorstep, but they’re only a short drive away, so it’s not much of a compromise,” he says.

Delaney is tipping the sleepy bayside suburb of McCrae as the next one to move. “For many years, McCrae has been overlooked in favour of more 'glamorous’ locations such as Portsea and Sorrento,” he says. “But these days, any place with water aspects is becoming like gold.

“As prices in Portsea and surrounds move beyond their reach, I believe buyers will start to see relative value in McCrae and prices should begin to move in the short to medium term.”

Buyers who aren’t precious about having water views and are prepared to do a bit of renovating can get into the McCrae market for as little as $350,000. Properties with water views (though still some distance from the beachfront) command more than $600,000.

Rents start at about $600 a week in the peak season.

If your preference is for the western side of Port Phillip Bay, Delaney suggests looking at the townships of Indented Head and St Leonards on the Bellarine Peninsula. “Prices there have quite a bit of upside; unlike Barwon Heads, where things are a bit crazy.”

Entry level into the Indented Head and St Leonards markets is about $250,000–300,000 for a basic shack within 10 minutes’ walk of the beach. Rentals start at $600 a week in the high season.

BINNINGUP BEACH and PRESTON BEACH, Western Australia
Where: Near Mandurah, 90 minutes’ drive south of Perth.
Why: Underdeveloped area in fast-growing municipality.
How much: $300,000–500,000

Moving westwards, the spotlight falls on the Mandurah region 70 kilometres south of Perth. One of the fastest-growing areas in Australia, Mandurah plays host to leisure-seeking baby boomers who live in Perth during the week.

Gavin Hegney, managing director of Perth-based Hegney Property Valuations, believes the area between Mandurah and Bunbury (100 kilometres to the south) will begin to boom once Ralph Sarich's Cape Bouvard Group opens a top-end resort on a large holding of land. (Sarich, the inventor and entrepreneur best known for his Orbital Engine Company, diversified into property development more than a decade ago.)

This will coincide with the completion of the Peel Beatty Ocean Road, which will bypass the back of Mandurah and zip back to the coastal road. This could prompt development in small towns that service the area, such as Binningup Beach and Preston Beach. At present, there are only a few houses and a limited market for holiday rental accommodation. In Binningup Beach, for example, there are only 500 houses, most of which are used exclusively by the owners.

Hegney believes this will change. “Sure, there’s only a small number of houses at present, but Sarich’s resort development will boost stock considerably, particularly at the top end of the market. With infrastructure going in to support the resort, now’s the time to be looking in the area.”

It’s easy to see the potential for capital growth when houses within walking distance of the beach are selling for as little as $300,000. You can even buy a property with water views for $500,000 and come out with spare change. Rentals in the area are $200–300 a week, rising to $500–600 a week in the peak season.

Further south, Hegney also likes the look of Prevelley Park and Gnarabup Beach in the Margaret River area. “Margaret River is the west coast equivalent of Byron Bay,” he says. “Permanent residents tend to gravitate there because of its reputation as a hub for alternative lifestyles. Wealthy people from Perth also own a great deal of land in the area. Yet because of its international reputation as a winemaking region, many people overseas know about the region too, and buy holiday homes there.”

Prices are beginning to reflect the area’s growing popularity. “You’re looking at $750,000 to buy a 2000 square-metre hilltop block with ocean views, one kilometre from the beach,” Hegney says. Rentals are $400–500 a week, rising to $750–850 in the high season.

The fashionable district of Eagle Bay is proof the West Australian holiday market can rival virtually any region in Australia when well heeled city-based investors become attracted to a single town; rentals in Eagle Bay roll between $500 and $900 week, jumping to $1000–1,600 in the high season. As Hegney suggests: “In Eagle Bay, prices are beginning to rival those on Victoria’s Mornington Peninsula.”

What’s more, the mix of local and overseas ownership gives the area a lot of upside. “Labour shortages and the continued mining boom means Perth prices are still soaring '” we had 15% growth in the last year and 7–8% in last quarter. As long as the mining boom continues, I can’t see the Perth market '” and therefore the Margaret River area '” slowing down.”

ACTION PLAN

If you’re buying a property in an undervalued location and you need rental income to help fund the holding costs, you should keep tenants’ preferences in mind. Tenants who lease out holiday homes in these areas are most likely looking for a quiet, tranquil environment close to the beach. If they wanted a more vibrant environment, they’d probably head to the better known (and expensive!) holiday spots.

Concentrate your search on locations that are well away from the hustle and bustle, yet are within a reasonable driving distance from a major town or city and preferably an airport.

Apart from the beach itself, look for additional leisure activities such as golf, tennis and boating. A few good cafes and a friendly local pub are added attractions.

Above all, don’t overcommit. Unless you’re prepared to do a true seachange and live in the property year-round, remember that seasonal changes in rental income can make it difficult to meet your commitments, particularly if you already have a mortgage on another property, such as your family home.

To maximise your cash flow, consider buying a relatively modest property a short walk from the beach and (where necessary) undertaking just enough improvements to bring it up to a lettable standard.

Ask around other owners in the area to find a reputable local agent who can manage the property in your absence. The right agent can be a valuable source of advice on what kind of improvements are appropriate, and likely rental income.