'When times get go is the Ferrari tough, the first thing to then it's the beach house'

"Individuals and businesses can reap a lot of great gains right now. It may be the misfortune of others but the buyers should well and truly be smiling," said Commsec chief equities economist Craig James.

A chic beachfront house in Central Coast hotspot Pearl Beach that was selling for $3.25 million in January is now available "for definite sale in the early $2 millions", said PRDnationwide Ettalong agent Stuart Gan.

A beachfront house in the South Coast village of Hyams Beach that was $3.2 million earlier this year now has a $2.65 million price tag.

"When times get tough, the first thing people sell is the Ferrari and next is the beach house," said McGrath Real Estate founder John McGrath.

"If you peek behind the curtain you will find a lot of these sellers are in the finance world and are caught with margin loan calls or not getting the same bonus or remuneration they've been used to," Mr McGrath said.

Prices at Hyams Beach, a favourite of the banking and finance set, are dropping back to 1999 levels, according to Hyams Beach Real Estate principal Todd Gallant.

"You can buy here now for $100,000 to $150,000 less than you could last Christmas," he said.

"Clients might have bought a house here that was for their retirement and times seemed great so they borrowed against that house for other things - now the bank's come knocking on the door saying, 'Your assets are worth less than you owe."'

The news that the NSW Government will increase land tax on investment properties worth more than $2.25 million adds pressure to the prestige beach house market. The annual land tax will increase from 1.6 per cent to 2 per cent.

"More people who had planned to hang on until the market improved will sell once they get another big land tax bill," said Ray White Killcare director Kerrie Ryan.

She has a beachfront property at Pearl Beach listed for sale with $3 million-plus expectations after it passed in at auction for $3.7 million earlier this year.

"Those people probably won't get the price they're hoping for and the land tax is already $60,000 a year on it," she says.

Property Central director Jamie Granger says the land tax slug "will frighten more people out of property" and it would make more sense to lower land tax to attract more investors to reap stamp duty revenues.

A raft of luxury homes has come on the market in Palm Beach, where some eastern suburbs home owners have weekenders that can fetch holiday rentals of up to $25,000 a week.

One waterfront property was valued at $12 million last year but is now for sale with a price guide of $8 million-plus.

"I suspect this is a short-term reaction to the economic conditions and in places like Palm Beach you will find that some people are just testing the market and won't actually have to sell," Mr McGrath said. "It's those homes priced between $1 million and $3 million that will be most affected."

Ray White Terrigal principal Jeff Mahoney said a Forresters Beach house he has for sale at $2.89 million was listed last year for $3.95 million with another agent.

"If you over-price a property, you have no chance of selling in this market," he said.

Mr James said the people forced to sell the beach house or sports car "are only a small niche in the market".

"For most people prepared to invest for the long term, this market is presenting wonderful opportunities for businesses and individuals to reap rewards at lower prices."

BIS Shrapnel managing director Robert Mellor says anyone who bought a coastal property before 2003 is unlikely to have lost much money on it as prices increased so dramatically during the good times.

COOL PRICES FOR HOT PROPERTIES

4 Loftus Street, Bundeena

Was $1.7m, now $1.5m

3/17 Calais Road, Wamberal

Was $2.8m, now $2m

23 Beach Drive, Killcare

Was $750,000, now $650,000