What waterfront property is telling us about the market

To start the year I thought I would create some investment insights using CoreLogic RPData's data applied to an exclusive set of properties - ones we would all love to live in but most of us can't afford.

I looked at a tiny market: property on the water in Mosman and Cremorne in Sydney.

This is a very small set of properties (182 in all) but obviously an exclusive set.

Some stats that interested me:

• In 2014 these waterfront properties had a total of 12 sales, which was a record. This was when the market was going well and there was a lot of confidence in Sydney housing. In 2006 there was the next highest number of sales at nine. There were only two sales in 2011. I find it very interesting that the average turnover in Australia is about 5% of properties in any year, yet these high-end properties turn over at a much lower rate. Clearly a tightly held market.
• The highest price ever achieved was $19 million but there have been 19 sales over $10 million.
• The last genuine sale for less than $1 million was in 1994.

So the picture of a tightly held and exclusive set of waterfront properties now emerges. The question to ask is this: Is buying one of these properties a better investment than housing in general?

For the 182 identified properties, in 2014 and 2015 there were 18 sales at a median of $5.96 million. This compares with 13 house sales at a median of $5.75 million in 2004-05.

This is a small data set so is not statistical, but it does indicate to me that there is maybe more emotion in buying an exclusive property and less interest in overall growth. Prices are also very volatile, and seem to be highly correlated with the stockmarket and business conditions.

Owners who did well seemed to be the ones with patience and timing - they bought into the market at volatile times such as after the GFC when prices were suppressed, and sold when business confidence was high - some returns were as high as 60% a year compounded for 10 years.

Most, though, did not do so well and when they did sell received a lower return than average for the Australian market.

The quick analysis of this micro market shows the same basic themes for any investment: timing and patience are key for when to enter or exit, and research is your best friend.

Of course, if you have the money and love the water views, the investment return is not always something measurable in a bank.

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