Waterfront properties carry a certain lure of a lifestyle that very few of us could imagine. Back when we used to take holiday locally or overseas, a common place we visit is the seaside. We may hire a house right on a beach, or stay in a hotel with a private beach just metres away. We are drawn to the lifestyle that living by the sea gives as it may help us relax and unwind. However, what are the real costs to owning a waterfront property, and is it worth the hassle?
Waterfront property is a scarce asset, within Sydney, there are only a few properties that enjoy a natural connection with the sea. These properties attract a significant premium due to this scarcity but what is it about waterfront properties that attract this premium?
Waterfront properties enjoy never-to-be-blocked out, unobstructed views over the water. This characteristic is extremely difficult to top. Development over water is only permitted in extreme cases. Usually for public use and only facilitated when connected to public land. An example of this would be The Finger Wharf at Woolloomooloo and The Pier at Walsh Bay. Both of these residences were never established as residential apartments but as a passenger ship terminal and cargo loading facility respectively. The possibility of private development over water might not be something that we see in our lifetimes.
Benefits of Waterfront Property
Any property that enjoys a water view but is not on the waterfront does risk having those views potentially blocked out. The right to a view is not protected, new developments are subject to council approval and their endorsed urban principles. Every development includes the potential impact analysis on neighbouring properties. These are limited only to privacy and light which are protected rights. There is always the possibility that plans and principles change over time. Waterfront properties are protected by both the difficulty in construction over water and the sheer legal ramifications of attempting to do so.
The lifestyle derived by a waterfront property can only be compared to being on holiday all the time. The same bliss and relaxation you enjoy whilst on holidays is perhaps what they enjoy all year round. A combination of the sea breeze, sound of the waves crashing and the glistening of the sun upon the water is very hard to replicate.
There is also a sense of entitlement and pride in ownership of something that most people may never have. A friendly rivalry between friends and business foes can dictate the importance of having something that they might not have.
As you can tell from the language above, the motivations for buying and owning a waterfront property stem from emotion and the feeling rather than any practical notion. This is a very clear distinction because what I’m about to show you is that owning a waterfront property has very little practical sense.
Problems with Waterfront Properties
Privacy and Boundaries
A never-to-be-obstructed view operates both ways. Even though you have unobstructed views, passers-by, sailors, and, ferry patrons all have an unobstructed view of you. There is an issue of privacy as there is nothing stopping a boat from dropping anchor close to the boundary of your property. A common misconception is the prevalence of ‘private’ beaches in Australia. In NSW, ownership of land extends down to the mean high watermark. This means that your ownership extends down to the average height of high tides in a year. If you have a beach on your property that can not be accessed by land. A boat with people is allowed land on the beach and not be considered trespassing.
Waterfront Erosion
The sea erodes the land over time and there is a lot of costly maintenance associated with maintaining sea walls. A storm with severe weather can accelerate the process of erosion as we all saw at Stockton Beach in Newcastle last year. There is very little anyone can do when faced with the forces of nature besides insurance. The unseen element of erosion, the salt in the sea breeze accelerates rust and corrosion on balconies, windows sills, and motor vehicles. This is no usually experienced away from the coast.
On-Going Costs maintaining waterfront properties
If waterfront properties have jetties, slipways, or boatsheds, they are subject to additional and ongoing levies/rent paid to the state government. These levies have been contested and published in the media. They lack any real logical sense as rates can increase erratically. Although the owners may be able to afford these levies. It is an additional detrimental factor as non-payment can result in NSW Maritime removing the structure. Possibly reclaiming the land to construct a kayak stop, and then passing the invoice to the owner.
Climate Change and Rising Oceans
Finally, long-term concerns and ramifications of climate change. The melting of the polar caps, and the inevitable rising of oceans and seas which will likely inundate all coastal properties. If this was the case perhaps the premium attained by a waterfront property should really be a discount? Of course, this is something that will happen over a long period of time.
Perhaps a reflection of the prices would be similar to the way 99-year leases in the UK fluctuate. At the beginning of the lease, it attracts a premium similar to freehold land but as the years go by, and the looming reversion back to the landlord becomes real and apparent. The price that any owner of a 99-year lease with 10 years left would be the cumulative present value of the future rent. If rent was $30,000 per annum then the price would be $300,000 factoring in inflation, costs, and the present value of future rents. When the seas start to rise and the reality that you are losing land and will continue to do so until there is nothing left like a 99 year lease.
Conclusion
The question is, why does it cost so much for waterfront property? You would expect that the wealthy people who have made smart decisions in the past to gain their wealth and own these properties are smart enough to understand these concerns or even pay advisors to help them make the decision. Why would they ignore all this?
This all comes down to the nature of property and our decisions surrounding property. Unlike equities, bonds, or precious metals, property is not defined by an algorithm or calculation on a piece of paper that guides you to the right investment decision. Property is all emotion, it’s the way a property makes us feel that drives our decision-making. Not practicality; Not the associated costs; Not the possible problems
Alexander Gibson