No great problems if you're enjoying it and want to hold for the long term, but what if you need to sell or want to move on in your life? How would you feel about dropping $90,000 or more, including selling fees, in five short years when you expected the price to grow?
It's a variation on a question that thousands of New Zealanders have probably been asking themselves as the holiday market continues to drift - with too many sellers and two few buyers - after initial substantial falls when the boom was rudely interrupted by the world economic crisis. But the real question they want answered is: when will prices start to improve?
For the answer, go back to the beginning. It's a chicken-and-egg thing. The bach will not start to move until the economic recovery is complete and secure and growth in standard residential property is well established.
While the latest QV data suggests, for the moment, an end to the residential property drift of the last two or three years, especially in parts of Auckland, any general recovery is likely to be of the steady-as-she-goes variety.
Away from the seaside, meagre supply and low interest rates seems to be driving much of the present price gain and, ignoring the impact of inflation, overall Auckland values are now simply back to where they were four years ago. In the North Island provincial cities, values are still down by 12 per cent and more.
If the number of urban houses for sale continues to rise over time to meet demand, prices will tend to settle back for a while longer - and an environment in which the main family asset is only slowly growing is not likely to spur a rush to the coast or lake, especially when the banks are guarding against risk.
In the end, events far from our shores will decide how quickly the holiday market will take to get back on its feet. If the European turmoil ends catastrophically, the coastal recovery will be many, many years away as our economy is inevitably savaged - increasing unemployment and uncertainty, holding back pay, drying up credit, stalling migration and killing confidence. Even if a slow and steady path to European - and United States - stability is mapped, there will plenty of bumps and uncertainty will be with us for years.
In real terms, it's impossible to imagine that prices will ever get back to the highs. The indications are that, even with the falls of the past few years, prices are still out of kilter with logical value and may still have some way to drop. All that is holding them up in many places are dogged owners refusing to accept the reality of 2011 that their places are not worth the money they want or need.
The value of the bach and standard residential homes in seaside areas is undermined in many areas by bare land which can't find buyers. The Far North, where section prices are now, on average, 42 per cent below 2007 levels and still falling, is "drowned in over-supply," according to one economist specialising in analysing coastal property trends. And the Far North, while the most fragile, is not alone: the bust which followed boom runs deep through the country.
That is the uncomfortable background to this Property Report survey of the discretionary secondary market which comprises holiday homes - a market that moved irrationally above the galloping levels of urban real estate through the 2002-2007 boom and has suffered since.
In a survey at the same time last year, a senior real estate agent specialising in coastal property noted in Property Report that overall values were back at 2003 levels. Nothing much has changed in 2011, except that it is now eight years without capital gain in many spots - virtually everywhere from the Far North, Bay of Islands and Ruakaka down through the coastal belt north of Auckland and to the Coromandel and Bay of Plenty.
It has made the bach an expensive luxury for most people, with inflation and running expenses eating into their capital and, in many cases, a mortgage which may be greater than the value of the property. The only consolation for people who bought in 2002 and 2003 and find their property is worth no more today than it was then is that at least they didn't wait until 2006 or 2007. If they had, they could expect their "investment" to be worth anything from 15 to 25 per cent less today.
In some cases, the drop has been as much as 50 per cent and the pressure has been punishing on the $1 million-plus properties. What we're talking about here are coastal areas dominated by pure holiday homes - centres such as Matarangi, Pukehina, Pauanui and Matapouri, not places such as Orewa, Mt Maunganui or Oneroa which are essentially urban residential. But the impact is also serious in those "half-and-half " towns such as Whitianga and Whangamata where baches and normal residential share the turf. When people start selling baches because of economic difficulties and are forced to cut prices to get a deal, that dropped value filters through to all local properties.
Sale levels are so low in many of the holiday playgrounds that it's difficult to be precise about the true levels of decline. When just the odd property a quarter is selling in some places, the lack of sales is plainly masking the degree of decline.
An interesting way of testing the strength of the market is to go back a year and search the coastal "for sale" ads at random. How many eventually sold - and at what prices? Quick answer, thanks to www.qv.co.nz: very few and invariably at deflated levels. There will always be the odd sales at good prices, but the overall trend for 2011 has been continued stagnation at 2003 and 2004 values, with sale volumes down by 50 to 75 per cent on the highs, especially in areas away from the cities and properties well back from the beach.
The pressure on prices remains as limited numbers of buyers demand value from the vast stock; if they can't get it from one property, they'll move on to the next. Economist Rodney Dickens, a close analyst of coastal trends through his company, Strategic Risk Analysis, says the full fall in prices is still some way off in many areas. He refers to a "Catch 22 situation" where little is selling because prices are too high.
"There will always be a few buyers willing or able to pay higher prices, and what does sell tends to be at prices way above what can be achieved by most vendors. Those vendors look at what is selling and conclude that prices haven't fallen that much and stick with over-the-top prices." Dickens, a former head of research at ASB Bank, is surprised at how long it has taken for the adverse demandsupply balance to be reflected in prices and "we have a long way to go before demand and supply are back in normal balance".
He sees confidence as less of an issue than some real estate agents might suggest, believing an eventual return of confidence in the economy will help a bit but "it won't solve the underlying affordability challenge". "The cold hard fact is that prices are still too high relative to what the bulk of would-be holiday home owners can afford," he says. He also points to the influence of "the stolen generation".
They are the buyers who were planning to buy a bach or section in due course but rushed to get into the market when they saw prices running away during the boom. Now, as they regret their decision, the "natural" demand of the next few years has been seriously eroded.
For the legions of people who bought too high or simply want to get out because their circumstances have changed, it's hard to take - even harder if they drop their prices to more realistic levels and still can't sell. They see nothing but black down that tunnel.
As Ken Bogue, principal of Warkworth-based Bogue Real Estate (under the Ray White umbrella), asks: "How do you sell confidence in a time of uncertainty?" Bogue's company sells within a belt of coast running roughly from Mahurangi Peninsula to Mangawhai Heads - prime Auckland holiday playground - and it's been a tough four or five years.
Omaha has been a relative bright spot, with some sales around 2007 capital values. But the trend is generally down, and the economic climate has forced "recreational" sales at depressed levels to protect the family home and business. Mangawhai and Mangawhai Heads, like the Far North and the Ruakaka-One Tree Pt area, have suffered through a vast over-supply of sections which has filtered through to values right across the region, pulling down prices for standard baches.
Bogue cites one 88-section development at Mangawhai Heads where 85 per cent of the lots were pre-sold on small deposits. Nearly three years after settlement date, the only houses on the development are the two built by the developer. Meanwhile, sections which sold between $150,000 to $250,000 are available today at a 40 per cent discount on those levels. Buying at $250,000 and selling three years later, if you're lucky, at $150,000, does nothing for a good night's sleep.
It's easy to see how that surplus of land flows through to homes, just as it has done in other areas where developers got carried away and took naïve punters with them. Why would you today buy an existing bach at its 2006 price of $420,000 when you can build a better one next door for $300,000?
In Whangamata, one of the North Island's great beach resorts, bach owners are beginning to accept it's no longer 2006 or 2007. For all the general seaside gloom, this stretch of white sand within two hours' drive of the steady demand of Auckland and Hamilton and the Waikato, is starting to pick up - not necessarily in price, but certainly in activity.
Murray Cleland, principal of Whangamata Real Estate, calls the local market "pretty solid", and individual sales last month at $2.1 million and $1.1 million show activity is not restricted to fibrolite baches. But it has taken time for the message to sink in that no one should expect 2006 prices, he says, pointing to two homes that sat for two years at inflated prices before the owners finally accepted deals 20 per cent below those peaks.
In the Far North, Barfoot & Thompson's Gary Jones says beach properties reached their peak in the summer of 2004/2005 and have fallen every year since. "For the last year we have been bouncing along the bottom," he says. Back in those crazy days, prices in popular spots such as Mangawhai Heads, Langs Beach, Matapouri and the Bay of Islands were starting to get beyond the reach of Aucklanders looking for a simple bach near the water.
Caught up in the national real estate frenzy, some of them turned instead to the Far North. There they found a coastal belt with beautiful beaches, stretching from Coopers Beach right up the Karikari Peninsula, that seemed very cheap - and in they came, giving agents a summer to remember.
Vast tracts of land had been opened up and section prices bore no relationship to any future demand likely to be stoked by travelling time from Auckland or even Whangarei. It seems bizarre now, yet scores of people paid $250,000 or $350,000 for a section, lured by easy credit, cheap deposits and the notion that you couldn't go wrong in buying coastal.
The Doubtless Bay boom built quickly from depressed levels and was all over a few months later. Today, Gary Jones suggests overall prices for Doubtless Bay holiday properties are back at the levels of 2000 or 2001. That's a decade going nowhere - a decade where standard residential in many parts of New Zealand has doubled, even if the last four years have seen no progress.
Sections in stressed sales going for $60,000 or $80,000 against rating capital valuations of $150,000 don't raisemuch of an eyebrow in the Far North, even though those CVs were dropped between 25 and 29 per cent last year. With sale volumes this year at barely 20 per cent of the market highs, it all sounds rather dismal, though Jones is starting to see some encouraging signs of activity, believing the market is surely close to good value.
He offers, as an example, two sales at lovely Rangiputa on the north-western side of Karikari Peninsula. The homes, with big sea views, sold around the $700,000- $800,000 mark; at the market peak they would have been in demand at over $1 million. "While we are certainly at the bottom, there are indications that people with the wherewithal are starting to see value," he says. "But the price has to be right, and there is still an element of vendor denial out there, particularly among those whose properties are a bit different and believe they are worth a premium."
Meanwhile, too many places for sale, too much land lying idle, too few buyers and too much uncertainty adds up to another quiet summer for the Far North and a future where capital gain looks as far away as ever. Down the road at Kerikeri, Barfoot & Thompson manager Bruce Holmes is a little more optimistic because his attractive little town is largely residential and an appealing target for Aucklanders and those further afield. But the pure holiday market is driven by "spare cash" and he can't see any early return to the highs of five years ago.
Also a worry, and filtering through to values, is the substantial stock of lifestyle blocks and sections for sale - enough to satisfy 10 years of demand at present rates. In the Bay of Islands, Bayleys' Chester Rendell tells a familiar story, especially for high-end properties. Anything with a price tag above $1 million is "hard work", he says, and a lot of people still think their properties are worth what they paid for them in 2005 or 2006. He cites a more realistic owner who listed his property at $3.2 million. After a year, it hadn't sold and the owner noted the website page had drawn 12,000 hits but only two inspections. With that knowledge, he accepted the price needed to drop, and has now cut it by $1 million.
But such an "open" attitude is unusual. Rendell says distressed sales have slowed down on his patch, but he suspects more will be on the way if the economy falters because "some people are hanging on by their fingernails".
Neil Christie, who manages Richardsons Real Estate in Pauanui, calls the present market "very challenging" and he can't see an improvement in activity and prices until the world economy has settled and confidence is boosted locally. In the meantime, hard-nosed buyers are aiming low and moving on to the next property if their offer is not accepted.
It's a tough world and it's going to get tougher. Thousands of New Zealand bach owners have some big decisions ahead of them because the "business case" for buying coastal - real term capital gain - has disappeared. It was good for many while it lasted. Soon the history books may need to remind us exactly what it was.
Capital gain becomes a distant dream
When coastal property was charging ahead during the 2002-2007 boom, a seaside spin on the century-old words of Mark Twain was a popular refrain: "Buy land, they're not making it any more."
Secure in their jobs in a buoyant economy and with banks flush with cash, a lot of people ignored reason and climbed in, pushing prices to what are now seen as silly levels. In the end, they should have absorbed another Twain line: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
Some of the "new generation" caught up in the latest boom, when many average houses doubled in value, somehow thought it would go on forever, perhaps as an earlier generation imagined it would do in the roaring 70s. Instead, they discovered the economists were right and, while residential property has done very well over long periods and will continue to do so, guaranteed capital gain is the stuff of fiction.
Ignoring economic indicators and buying at the wrong time to chase an illusory capital gain has been destructive for those forced to sell and has eroded personal wealth for those who have chosen to hang on.
The coastal "holiday" market will always be more volatile than standard residential because, while many areas have permanent residents, the discretionary dollar is a key driver.
When the economy's doing well, the business is going strongly and job security is high, the dream of a bach comes into focus; when the economy sours, the dream often follows it.
As one agent notes: "When the economy dips or moves into recession, people lose their jobs and businesses get under pressure. The leased BMW is the first thing to go and the bach quickly follows."
It's not a major problem for everyone, of course. The family bach that granddad built will stay to welcome another generation, and the well-capitalised will suffer any paper fall and still enjoy what the seaside offers.
But when over-supply collides with miserly demand controlled by bargain-hunters, the result is continually drifting prices and lots of pressure on those who bought too high or hung on too long.
Unlike normal residential where owners enjoy the economic benefit of a roof over their heads even if prices drop, the bach sits vacant most of the year, giving nothing back except for memories and good times. The bare section doesn't even do that, and the bills from the lawn-mowing contractor and the council keep coming.
But jandals in the sand, snapper off the rocks and the smell of salt are part of who we are and help to under-pin values.
For people with plenty of equity who take their time, buying today at 2003 levels may have some logic, but only if the plan is sand and snapper, rather than capital gain.
