KEY POINTS:
It is sad to see glamorous multi-million dollar property developments going to mortgagee sales.
As much as it is disappointing for those who have their investment dollars tied up in such schemes, it is also another reminder of how dramatically the New Zealand economy has moved on from the heady boom times that marked the first part of this decade.
The era - which might go down in history as The Lord of the Rings years - was marked by a burst of investor optimism, a boom in tourism and international enthusiasm for luxury properties in scenic locations. Property prices in towns like Queenstown and Nelson soared.
This week financier Hanover was forced to put the Kinloch Golf Course, near Taupo, and many of its surrounding properties on the block. There's no doubt the finance company is doing the right thing for its investors.
In the current environment cashflow is an issue for all finance companies (including some of the world's biggest banks) and it is becoming increasingly clear that a serious property downturn is under way. Playing the waiting game on slow-moving developments is no longer a realistic option.
But the outlook for large-scale luxury property developments is particularly worrying and more mortgagee sales are likely as financiers cut their losses.
As well as facing the slings and arrows of the slowing domestic economy and a local property slump, the luxury market faces another serious problem.
The sector's rise this decade was fuelled and underpinned by overseas investors - wealthy Asians and Americans who eyed New Zealand as a cut-price paradise.
Middle-class baby-boomers in the US are among the world's wealthiest people when viewed as a percentage of the global population. But that's not how they are feeling right now.
For most of this decade, US home owners were a happy bunch - their house values had soared.
Baby-boomers, with their mortgages under control, were feeling comfortable using their equity to invest in second homes. Cue Lord of the Rings and a huge surge in international attention on New Zealand and its charming scenery.
Not surprisingly, 60-somethings priced out of traditional US scenic spots in places such as Oregon and northern California noticed that their money went twice as far in this fashionable hobbit country. We were dubbed the California of the south.
But Americans no longer feel as wealthy as they did. The appeal of New Zealand has been hit with a double whammy. The equity value of US homes is falling. So fewer Americans are investing in the luxury market. Those who have cash can probably smell bargains closer to home.
Internationally their dollar - which means their buying power - is at rock bottom. So New Zealand - with property prices still near the top of the cycle - just isn't looking cheap.
It would be nice to think that cash-rich Asian and Middle Eastern investors will ride to the rescue.
But while well aware of New Zealand's investment potential, they are also well aware of how our local property cycles work.
Those who manage the New Zealand-based wealth of Asian investors say they are more than happy to sit back and wait for the bargains that may arise over the next couple of years.
It's certainly not all gloom for this sector. New Zealand isn't getting less beautiful. Our mountains and lakes will still be looking just as pristine when the dollar has corrected and the international market rebounds.
This is just a timing issue. But it is a timing issue that could potentially leave some high-profile developments badly exposed.
Liam Dann is the editor of the Business Herald.
