Key Points:

Just about now, thousands of people up and down the country will be day dreaming of buying a bach. But few of those browsing coastal real estate agents' windows wistfully can afford to buy into the Kiwi bach lifestyle.

Not so, say the people marketing a new style of holiday property ownership: fractional (also called proportional) ownership.

Instead of buying the entire property, you can buy a quarter, a tenth or another proportion of a luxury coastal home or apartment. Buyers usually get a freehold title for their share.

A body corporate is set up to manage the property and owners have signed agreements with each other, which may be encumbrances on the title. For your quarter or 10th, you get to use the property for that proportion of the year.

The promoters of fractional ownership are at pains to suggest that this style of ownership isn't timeshare.

The distinction may, however, be little more than semantics.

Ownitnow.co.nz, which sells fractional ownership properties in Omaha, says: "With a timeshare you buy only time and there is no residual value. With fractional ownership schemes you have a share in the freehold of the property and your legal obligations and duties in relation to the property are governed by New Zealand law."

Yet David Barry, resales agent for Sun Pacific Villas timeshare in Mt Maunganui, argues that fractional ownership is simply bigger chunks of timeshare at higher prices.

The values of weeks at Sun Pacific Villas do go up and down according to market economics. What's more, if the property was ever sold, the owners would be entitled to a share of the proceeds.

'Tis not the season to be cynical. However it's no mistake that the praises of fractional ownership are being sung by those people selling properties themselves, the developers and related marketing companies.

It was not that long ago either that developers were marketing Auckland apartments and serviced apartments as the way to make $1 million from $1000 down. Many of those apartments have made their owners poor, not rich. It's not difficult, it seems to get a high valuation done and offer this as evidence of the market value.

The reality is that we won't know if the prices being paid for fractions of properties are fair and reasonable until they start coming up for sale on the secondary market.

Not everyone in the property market is looking for fractional ownership, which could make the market illiquid - resulting in depressed prices.

This is exactly what happened in the timeshare market.

Even now, the cost of a timeshare week in a freehold development is significantly less than the buyer's share in the value of land and buildings.

The Sun Pacific Villas' land and buildings are currently worth in excess of $30 million. Divided by 1530 owners, it amounts to $20,000 per timeshare week. Yet the vast majority of those weeks that come onto the market sell for around $7000 each.

The big "but", says Barry, is that the unit titles act means all owners would need to agree unanimously before the property could be sold.

Anyone looking to buy into fractional ownership needs to use an independent lawyer and accountant, no matter what the developer says about providing them for free, and look very carefully at:

* The contract and any associated agreements with other owners.

* The annual management fees.

* Whether the building is managed as a co-operative or if the management company is creaming off a profit * Any fractional ownership exchange schemes being offered, such as the RCI Registry Collection, which will allow owners to bank weeks for exchange.

* Whether the sum of all of the fractions add up to more than the value of the property on the open market.

* If buyers can borrow money for the purchase or need to stump up the purchase price or extend the mortgage on their own home.

From an investment point of view, fractional ownership doesn't look rosy. The developers will point to capital gains in coastal property over the past few years. But as any investment professional will tell you, past gains are no guarantee of future gains.

In many cases it's not possible to sub-let your fraction.

That means you can't officially charge rent for any time you're not using it - something that many bach owners do to make ends meet or pay the council rates. That also means that your costs aren't tax deductible.

Even if you can sublet, at most you can only deduct a proportion of your costs equal to the number of days or weeks the property is available for rent.

So if you use four of your 12 weeks, you can claim only around 15 per cent of your costs, which can amount to diddly squat.

Buyers also need to beware that many of the properties are being sold "off the plan", which means they're not yet built.

Typically, developers need to pre-sell a certain proportion of the development to get finance from a lender.

Prospective buyers are encouraged to buy by being sold the idea that they'll make a capital gain between when they sign up and completion. In a sideways or downwards market, which we may currently be in, this isn't the case. On the upside, many of the fractional ownership properties on the market are truly spectacular and buyers get a millionaire lifestyle for a few hundred thousand dollars. The answer for smart fractional buyers may be to wait for the second-hand market where prices will be subject to the forces of supply and demand.


Palace or paddock?
TIMESHARES

Timeshares have a terrible reputation, but are often loved by those who have bought into the concept. Many Kiwi families treat timeshares as the family bach. It's not unusual to own several weeks in one resort, or spread across several resorts.

Second-hand timeshares often provide very good value for money for buyers. They can be bought through Trade Me or Timeshare.co.nz, Monad.co.nz or redseason.co.nz, from as little as $1000 for a week. You will also need to pay annual management fees.

Timeshare buyers need to beware of companies selling new timeshares - especially points-based timeshares. These can lose 50 per cent of their value as soon as they're purchased.

SECTIONS

If you can't afford a bach, a section might be the answer. As the Herald went to press Richardsons Real Estate had a Matarangi section, caravan and utility shed for sale at $229,000, which was $110,000 cheaper than the very cheapest house and land package available.

This can prove to be a very cheap family "bach". The land will continue to grow in value along with the market, and when you can afford it, a house can be built.

STATIC CARAVANS AND UNITS

Virtually every campground in the country has privately owned caravans and/or units on site. Typically you buy the caravan or unit and then pay a ground rent to the campsite owner.

Owners can stamp their own personality on their caravan and store boogie boards and holiday paraphernalia on site, which is more than can be said for many fractional ownership properties.

They're also relatively cheap to buy, compared to seaside property. For example, at Waihi Beach Top 10, a 5.2m caravan and leisurebuilt annex was for sale in December for $42,000 ONO. The annual rent was $4200. For that you are just across the road from the beach and have access to all of the campsite's facilities which include a new 25m solar heated lap pool, sauna and gymnasium, children's play areas and trampolines and 42-inch Sky TV screen in the camp lounge.

BACH RENTAL

For those who don't think that coastal land values are likely to rise in the next few years and don't need to be king of their own castle, bach rental offers a good alternative.

There is an awful lot of lost opportunity cost on the type of properties offered for fractional ownership. Instead of "investing" in fractional ownership, it might just be worth renting an architecturally designed bach such as The Cove, Omaha Beach, which is property number

4188 on Bookabach.co.nz and costs $3300 a week to rent at high season.

BARGAIN BASEMENT BACHES

Believe it or not, sub-$100,000 baches can still be found. They're often on leasehold land, meaning you only own the buildings, not the land.

Search Trade Me or Realestate.co.nz and you'll find a number of bargain basement baches for sale - some of which are little more than shacks. For example, just before Christmas a two-bedroom "cottage" with "limited harbour views" on 1280m2 of land in the upper reaches of the Hokianga Harbour was selling for $85,000.

A "genuine bach" in a "prime position" with "stunning harbour views" on leasehold land at Raglan was being sold by Raglan Real Estate for $98,000.