@Gblenn
Just tested it with /31 and it works. For route-based IPsec the gateway is created automatically when you assign the tunnel to an interface. I haven't tried with /32 tho. But I tried with larger subnet like /24. I guess it's like what you said, as long as they are on the same subnet it will work. Just that for point-to-point connection with a single transit network it doesn't make sense to use something larger that contains more than 2 IPs.