The market for private islands, and properties on islands, has shown modest price growth, says a report that also attempts to debunk some myths about this market.

Prices for properties on islands – and indeed for these entire “micro-countries” - saw modest price growth on average during 2014, with quality properties proving the strongest draw, according to a review by Knight Frank.

The review sheds light on how such properties – typically the assets of the ultra-wealthy – have seen a mixture of price movements in recent years. The island markets with the strongest rises in prime prices in 2014 were Bali, Mustique and Ibiza with 15 per cent, 5 per cent and 5 per cent growth respectively. Properties in Jumpy Bay had a 3 per cent increase in prices; the Cayman Islands saw a 2.5 per cent increase, and the Bahamas and Cyprus both saw rises of 2 per cent.

St Barts showed no change since the prior year while prices for prime property in Barbados decreased 3 per cent; Mallorca decreased 2 per cent; British Virgin Islands decreased 7 per cent and Sardinia decreased 8 per cent.

An island property is increasingly a rare commodity, particularly since buyers appear attracted to tight planning restrictions, Knight Frank said. Developed private islands will generate stronger demand than those requiring large-scale utility installations as buyers tend to look for quality islands, according to the firm.

Yet, despite the limited inventory of “quality” private islands, prices haven’t accelerated significantly and, in fact, in some parts of the world remain relatively affordable, the report said. This could change as in Asia the concept of a second home or "lifestyle" purchase is slowly becoming more established and this trend will increase significantly in the next five years with major repercussions for global markets, the report stated. Yet, the firm expects there to still be a desire by Asian buyers to generate an income from their acquisition via a commercial enterprise such as a holiday let or small vineyard.

Knight Frank said there are several myths about islands and island-based real estate, such as that celebrities and UHNW individuals are the main buyers and private islands equate to using private jets. In fact, most UHNW individuals fly to a nearby hub and then travel by boat to their island. Another myth is that tax benefits are the key motivation for buyers - in fact, fewer than 10 per cent of islands provide tax advantages to residents. Regarding pricing, the report highlights that 65 per cent of private islands currently for sale are priced below $500,000. The firm also highlighted that private islands are not in fact a shrinking resource - because volcanic eruptions are creating new islands each year with Tonga, Russia and Japan home to the latest additions.

“If supply is constrained - either due to strict planning controls or because there is a sustained period of economic growth - the long-term prospects for capital appreciation can be positive,” the report said.

“According to our recent Prime International Residential Index, which tracks prices across 100 luxury residential markets worldwide, mainland second home markets recorded a 2.6 per cent fall in prices in 2014, whilst the 13 island destinations included within the index recorded flat growth by comparison (0 per cent),” it continued.

“Asian interest in second home 'lifestyle' purchases will strengthen in the next five years but there will still be a desire to generate an income from their acquisition via a commercial enterprise such as a holiday let or small vineyard etc,” it said.

“For some UHNW individuals developing a private island can be a challenging task. Alternative trophy assets, such as acquiring and designing a super yacht, present an exciting challenge. A private island by comparison requires engineers, new infrastructure and utilities as well as on-going management. As a result, we expect developed private islands to generate stronger demand than those requiring large-scale utility installations. For younger UHNWIs renting is the way forward. Many wealthy millennials are opting to island hop, spending a month in Mustique, followed by Fiji or the Whitsundays,” it added.