The general advice when buying residential property is to purchase based on ‘location, location, location’.
But while this is good advice, when considering purchasing property in coastal towns such as uMhlanga just north of Durban in KwaZulu-Natal, how does price growth in front-line properties compare with properties located a few roads back from the beach?
“Does the mantra apply absolutely in this scenario, or do properties a few roads back hold their own? So asks Gareth Bailey, Pam Golding Properties area principal for Durban Coastal, based in uMhlanga.
“From a property investment point of view, conventional wisdom suggests that we should always choose front-line properties over those situated away from the beach because they offer the best sea views, easier access to the beach and the best capital gain prospects due to limited supply.
“However, these benefits come at a premium that is unaffordable to many people. Properties set back from the beach are cheaper and can offer different lifestyle aspects, for example, the opportunity to live in a simplex or duplex and have your own garden. But how do these properties perform from a capital growth point of view?”
In considering this question, Bailey pulled a deeds office transfer report for the last nine years and compared three popular front-line sectional title schemes - Edge of the Sea, The Oysters and Seashore, with 10 schemes set back from the beach, including: The Shades, Terra Mare, Umhlanga Terraces, Seaford Park, Costa do Sol, Palma Nova, to name a few.
He found that the average selling price of front-line units in 2009/2010 was R5.6 million which nine years later has increased to R7.4 million. Likewise, the average selling price for sectional title units set back from the beach was R1.5 million in 2009/2010 and is now R2.5 million. To reduce the bias caused by unit size, Bailey considered growth in terms of average price per square metre.
Says Bailey: “Front-line properties averaged R26 400 per square metre in 2009/2010 and R38 300 in 2018/2019. Properties set back from the beach averaged R14 000 and R21 400 per square metre over the same period respectively. This means that in growth terms, front-line properties experienced 45% growth over the term, averaging 5% per annum, while their non-front-line counterparts experienced 54% over the term and 6% per annum.
“This is interesting as it suggests that while front-line property commands a premium in price, the actual growth rates are very similar, in fact, based on this dataset, growth in properties set back from the beach has outperformed front-line properties by 20% over the nine-year period.
“So the case for ‘location, location, location’ applies more broadly in this case and does not rule absolutely in terms of price growth despite the front-line’s better position.
“This offers just cause for investing in uMhlanga properties set back from the beach as they are more affordable and offer sound capital growth over time. Many of these properties have small gardens, offer easy access to the promenade and the beach, and allow pets. They can be rented out on a long-term basis (6, 12 months or more) or they can be holiday-let to generate rental income.”
Bailey adds that not all schemes permit holiday-letting in terms of their body corporate rules, but some do, and this offers investors flexibility to earn income from the property during the year but also to enjoy it themselves from time to time when they are in town. In addition, given the dual investment and lifestyle characteristics of these properties, they present a compelling case for investing now and retiring here later.
“That’s not to detract from the compelling appeal of front-line properties – for those who seek the ultimate location a stone’s throw from the ocean with totally unobstructed 180 degree views, the premium price tag becomes secondary to the prime location.”