It's known as the shipwreck coast. Extending 100km along Victoria's Great Ocean Road starting from Moonlight Head, Warrnambool, is quickly gaining a reputation for being more than a popular tourist destination. The regional city, just three hours outside Melbourne, experienced one of the strongest growth rates of a lifestyle location in Australia during the past 12 months and experts believe it's just the start.
Hotspotting.com.au director Terry Ryder, who has been following housing trends for more than 25 years, describes Warrnambool as affordable and a region where "you can see identifiable reasons why there is going to be growth there from a low base".
The median price in Warrnambool is sitting at about $275,000 and during the past few years has been experiencing an annual growth rate of about 10 per cent, his research shows.
A key growth driver for the region, Ryder says, is that it has a multifaceted economy, meaning it's not reliant on one industry.
"The big kicker there is energy generation, he says. "It's a real centre for projects of an alternative energy nature, particularly wind farms." The federal government's move earlier this month to set renewable energy targets, he says, is going to be a boost for all such projects in that region.
"That's the area investors should be looking at rather than the Gold Coast or Byron Bay."
Warrnambool is just one of many lifestyle hot spots across Australia that are expected to undergo strong growth in the coming years.
The outlook for the holiday home and lifestyle property market is a far cry from what it was 18 months ago. A large part of the market was torched by the global financial crisis.
Stressed sales saw values in some regions plunge by as much as 30 per cent. Those types of property are usually the first assets to be sold in an economic downturn.
Nothing captured the moment as clearly as a sobering note from the head of institutional dealing at Southern Cross, Charlie Aitken, to clients last October. In depicting how the "great deleveraging is playing out in the Australia economy", he wrote: "The old saying is 'The first thing to go is the beach house"' and "it appears clear the great beach house sale is under way".
Aitken also mapped out sales at popular high-end holiday house locations across Australia at the time. Among them were Palm Beach in Sydney, Lorne in Victoria and Noosa in Queensland.
RP Data residential research director Tim Lawless says the lifestyle property market was hit pretty hard by the global financial crisis, with "larger than average downturns".
That end of the market, he says, was usually driven by investors and holiday home owners, so when the downturn hit a lot of those people had to become more liquid quite quickly, therefore were forced to sell their homes.
"Some of the hardest hit areas were the most popular coastal destinations where a large proportion of housing is either holiday homes or dependent on the holiday market dollar, Lawless says. "Areas such as the Gold Coast, Sunshine Coast and Cairns in Queensland, the central and northern coast of NSW and Victoria's surf coast are all good examples."
But Lawless believes that financial pain has passed and the worst is over in price falls. However, he is less up-beat about the timing of a turnaround in the tourism market and, as such, he says for regions reliant on the tourism dollar "it's probably going to be a flat market for some time".
Agents are reporting that it is becoming more common to see at least a few buyers chasing the same property. They also say they are closing deals much more quickly. Raine & Horne Palm Beach principal Glenn Lee says: "The last quarter there's been a good improvement in buyer confidence."
The Simpson family from Melbourne recently moved on a three-bedroom townhouse in Airlie Beach in Queensland.
Ken Simpson, who only will say they paid less than $1 million, says: "We feel confident that whatever recession that is upon us has levelled out and it most probably not going to be as bad as I had thought (it) may have been."
Price was a key reason for the acquisition, he says, estimating that they paid more than 30 per cent less than they would have 12 months ago. The family will be putting the property in a holiday rental pool and is hoping to attract about $575 a night.
"I just think it's essentially a good time to buy property," Simpson says.
For investors who are ready to make a move into the lifestyle-holiday home market, international real estate group Colliers International says investing in property along the coastline is "like buying into the blue-chip sharemarket".
"The price of entry is normally higher than inland properties, but the rate of return is often better and the risk of a loss is minimised due the scarce and unique nature of these properties," the group says in a report.
Specifically, Colliers has found that coastal property perform exceptionally well when the markets they are in have been driven by five key fundamentals: population growth, strong tourism market, private and government spending towards infrastructure, strong confidence from developers and existing infrastructure.
But with the cost of buying into a coastal area possessing those key fundamentals being high, it says the "emerging coastal communities (that may) not yet have all of these facilities are worth a look".
Also not to be overlooked, Colliers says, are the more regional beachside towns, which it adds "represent some of the best capital growth potential and in many cases provide a comparatively affordable entry point into this popular coastal market".
"Ultimately the key factors buyers should look for when selecting property in emerging regional coastal hot spots are as many of these market fundamental as possible, plus any features (that) make the region unique, such as an economy based on military, tourism or agricultural and mining services," Colliers says.
Lawless agrees. He says those coastal property locations offer the best buying opportunities simply because they have had the biggest price falls and the scarcity of land factor.
"There's not a lot of coastal land that hasn't been developed around Australia, particularly in the key areas that are close to the metropolitan cities," he says.
"When you look at some of the hinterland locations, there's a bit more supply and probably not quite as large a market as people who aspire to live near the coast."
For Colliers, the best investment potential is in Queensland and NSW.
In Queensland, it cites Moranbah houses, Mackay apartments, the suburbs neighbouring Brisbane's Moreton Bay; Coolum Beach on the Sunshine Coast; Mount Coolum units; Sippy Downs and Toowoomba.
The hot spots in NSW, it believes, are Port Macquarie on the mid-north coast and Moss Vale in the southern highlands.
Interestingly, Ryder advises investors to steer away from locations such as Noosa, Byron Bay and Surfers Paradise, describing them as "chronic underachievers over time " in terms of capital growth. "They have a big reputation and people think they are the places to buy. I think partly because of a lot propaganda that comes out of those markets," he says.
"Investors tend to believe those are the places to buy but the research indicates that they are underachievers on capital growth very often."
The main reasons for such locations underperforming, Ryder says, is the lack of affordability. Another is the potential for oversupply.
"Those high population growth areas tend to attract developers in great numbers and they flood the market periodically with oversupply, particularly high-rise apartments," he says.
As an example, he cites the Gold Coast market. The average median house price on the Gold Coast rose 68 per cent in the five years to December 31 last year. That compared with the nearby city of Logan, which rose 131 per cent.
Of the 43 suburbs in Logan City, 34 experienced at least a doubling of prices during that five-year period, according to Ryder's research. On the Gold Coast, just three out of 55 suburbs showed a doubling of growth in prices.
Ryder believes affordability is the key reason the rural towns have been performing better.
If anything, Ryder's research shows that inland country towns and regional centres display better capital growth than the coastal areas.
"While a lot of people might aspire to live by the ocean, that doesn't translate into pressure on prices because most people can't afford it," Ryder says.
The average annual capital growth in the NSW coastal regions of Port Stephens, Forresters Beach, Nelson Bay and Shoal Bay has been running at about 8 per cent. That compares with the nearby inland areas of Maitland and East Braxton, where the average annual growth rate was 13 per cent and 15 per cent respectively.
Lawless adds that because the rural regions, such as the hinterlands, are less reliant on the tourism dollar they have not been hurt as much by the economic downturn.
Ryder also warns that population growth doesn't necessarily equal a good place to invest.
"I think it's a mistake that a lot of investors make, buying into high population growth areas," he says, while also pointing out that those areas tended to have periods of oversupply.
If you're after a lifestyle property that is going to be an investment and part of your superannuation, and you therefore need capital growth, Ryder says "you need to look at areas that have identifiable reasons to show capital growth". Good infrastructure is one example.
"While sea-changers have been a major mover, it's not enough to be in a sea-change location to guarantee growth because coastal towns are a dime a dozen around Australia," Ryder says.
He believes people are overlooking some prime investment opportunities in inland regional Australia "that have all sorts of action happening that has given them strong economies".
Within the northwest NSW region, Ryder says, there is a strip that includes Narrabri, Gunnedah and Moree that offers strong growth opportunities and poses less risk because they have multifaceted economies.
If you are buying a lifestyle property as an investment, it's important to factor in the lower yields they generate.
Unlike traditional real estate investments, yields for holiday homes and lifestyle properties are generally lower, at about 3 per cent. Yields on traditional apartment or unit investments in the cities are about 5 per cent.
For example, a simple three-bedroom farmhouse with land on the Margaret River in Western Australia could generate $250 to $350 a week plus an additional $110 to $185 a hectare.
At Airlie Beach in Queensland, PRDnationwide Whitsunday property consultant Rob Taylor says a holiday home in the area could attract $30,000 to $60,000 a year depending the quality and position of the property.
On average, he says, a holiday home could rent from about $200 a night up to $500 a night.
The biggest risk with holiday home letting, he says, is a lack of consistency in the income.
"It's always going to come down to prices being affected by supply and demand," he says.
Also, management fees or commission rates are usually higher for holiday homes, in some cases by up to 5 per cent more than traditional rental agreements.
Not to be overlooked if you want to rent out your house or unit is the internet. Shayne Richards, holiday property manager for First National Real Estate Yamba, says: "The holiday rental market uses the internet as one of its greatest tools."
She says it has been a successful tool because it allows potential tenants to view the properties, location and amenities. "It's all there before they even start, and then the normal procedure is they can then book online." Richards says the internet is a cost-effective tool for owners and tenants looking to rent out holiday homes.
Generally experts say, when buying a holiday home as an investment, to be prepared for greater wear and tear.
They also warn there is a high risk the property could be vacant during the low seasons.
