Over-developed land means opportunities knock

When economists describe a house as little more than a piece of dirt with a depreciating asset on top of it, they deliver a hidden message to thousands of holiday home owners across the country.

In the upper North Island alone in recent years, developers have created thousands of sections on the coast, giving a lie to the line that coastal land will always appreciate because "we're not making any more".

Developers opened up tracts of land, especially in the Far North, but also in areas like the Bay of Islands, One Tree Point, the Kaipara, Mangawhai Heads, Matarangi, Pauanui and Whitianga. Even in mature coastal towns like Whangamata, with limited room to spread, sections were cut up and bulldozers got busy on new subdivisions.

The parallels with the Auckland apartment experience, which has taken years to shake itself out and scattered victims all over the CBD, are interesting. People bought off the plans in a sector where prices were set by developers offering inducements like guaranteed initial yield rather than through rational valuing.

On the coast, riding the general property boom and with banks happy to support the spending, the prices were right up there - and people bought, often lured by a small deposit with the remainder required when the subdivision was complete. Many eyed the prospect of selling before final settlement, perhaps turning a $5000 deposit into a $40,000 or $50,000 capital gain.

Then the world's financial system imploded and New Zealand entered its worst recession since World War II. Developers came unstuck, section owners ran into problems and mortgagee sales and dismal demand saw prices tumble. Today, in an economy which is wobbly, where job security is still uncertain and money tight, others sit unwanted, even at tens of thousands of dollars beneath the original asking price.

The result: a huge over-supply of sections, depressing prices further and with no prospect of early relief. No one really knows how many vacant sections littered through the North Island mask an even deeper problem - people sitting tight and hoping time will give them a way out. The only other option: sell now and perhaps get less than half of initial cost.

On the surface, it seems a problem restricted to sections, but it runs deeper. Declining values will filter through to holiday homes as well.

As one valuer notes: "I can buy one of these sections for less than $100,000 when they were previously listed at well over $200,000, and I can then spend $200,000 getting a house built. Why would anyone be interested in the place down the road which isn't as nice yet is for sale at $425,000?"

Valuers say it is inevitable the depressed prices from the over-supply of sections - many of them skimpy as developers took a "cram-'em-in" approach - will have a continuing impact on values for existing homes in the immediate areas and, over time, those further afield.

Of course, one man's pain can be another's potential joy. Buying a section with a decent sea view for $70,000 or $80,000 and moving in a caravan or utility shed may be tempting and the downside, for those who can afford it, is limited.

But unlike three or four years ago, there's no need to panic. They're not seagulls squawking overhead. They're vultures.