Island homes are good long-term growth prospects, says Knight Frank

KUALA LUMPUR (July 27): Island holiday homes provide good prospects for long-term price growth despite higher investment risk, according to global property consultancy firm Knight Frank in its “The Island Review” report.

“Buyers appear increasingly attracted to tight planning restrictions, and even some outright building moratoriums, which is making an island property in many locations an increasingly rare commodity,” it says.

However, in 2014, online viewings of island-based properties via Knight Frank’s website also increased 21% year-on-year.

Its Prime International Residential Index, which tracks prices across 100 luxury residential markets worldwide, shows that mainland second home markets recorded a 2.6% fall in prices in 2014, while the 13 island destinations included within the index recorded flat growth by comparison.

However, Knight Frank cautions that a second home, whether island-based or not, is a discretionary purchase and thus its price can be influenced by supply flows, such as “strong levels of new construction or economic downturns which prompt a large volume of simultaneous disposals”.

Conversely, it notes that constrained supply — either due to strict planning controls or a sustained period of economic growth — can be positive for long-term prospects of capital appreciation.

The report also shows that the private island market has changed irrevocably in the last 20 years due to three key events: the advent of the internet, the global financial crisis (which saw “Ultra High Worth Individuals retreat to their core markets”) and climate change.

The report says the key emerging island destinations include Panama, Costa Rica and Belize in Central America, and the Philippines and Tonga in the Asia Pacific.

“In Asia, the concept of a second home of ‘lifestyle’ purchase is slowly becoming more established and we expect this trend will increase significantly in the next five years with major repercussions for global markets,” says the report.