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New Zealand Winter Home Update

Thursday 16 June, 2005 

Good afternoon

You're getting this - the first of an occasionally emailed newsletter about our New Zealand Winter Home concept - due to having provided your email address when answering our survey at the beginning of the year.  Needless to say, if you no longer wish to get email on this topic, simply reply and set the subject to "remove" and you'll be immediately taken off the list (but if you're on the main Travel Insider list, you'll still be on that).

As you may have seen in last week's Travel Insider newsletter, my silence these last five months doesn't mean that nothing has been happening.  What it does mean is that securing a high quality and high value opportunity for us all (oh, yes, I'll be buying the first unit, myself!) is proving to be an extraordinarily difficult undertaking.  This email is to quickly update you on the current situation and to ask if you would be interested in joining me on a fact finding tour of New Zealand in late October/early November.

In terms of already identified opportunities for us in NZ; there is a profound shortage of suitable opportunities - either in the form of existing developments, or land that could be developed.  This shortage is exacerbated by the fact that New Zealanders are generally more willing to quickly pay top dollar for such occasional gems than are off-shore potential purchasers such as ourselves.  This was unexpected (a lot has changed in New Zealand since I moved up here 20 years ago!), but when you consider that NZ is very small, it can be understood.

NZ has only 3% the land area of the US, and 1.4% of the population (4 million people, in a country about the size of Colorado or Oregon).  It doesn't have an inexhaustible supply of land, and its people are very protective of what there is, seeking to maintain NZ's clean green pure image.  This greatly limits what can be developed and where.

Furthermore, NZ property prices and the NZ dollar have both skyrocketed over the last few years.  Several survey respondents chose to lecture me sternly about my estimated costs of a two bedroom condo (I'd said between US$150,000 and US$250,000).  They told me this price range was foolishly high, and wondered either if I was being ripped off by a developer, and/or if I was trying to rip them off!  The simple explanation - their understanding of NZ pricing is out of date.

In real US dollar terms, NZ property prices have doubled in less than five years, and my price range is - if anything - low rather than high.  You can see for yourself - here is New Zealand's main real estate listing website.  A word of caution - you will see places selling for less than US$150,000 (about NZ$215,000) but you need to consider everything the listing doesn't tell you in terms of property location, quality, etc; just the same as with real estate listings here.

One of the key factors of the NZ Winter Home concept is your condo/house could be rented out to short stay visitors while you're not present.  This rental income takes the sting off the cost of a unit.  Another factor to consider is the potential for property value appreciation.

While we do not recommend a NZ property as being a good short term investment (although you'd probably already have got the better part of 5% increase in value if you'd bought a property in NZ when I first mentioned the idea in December!), longer term it is likely to give you a good return, which definitely translates the negative of the upfront cost into a positive.

If you stay in a hotel, the money you pay them has gone forever.  If you get a NZ winter home, the money you spend on it, in largest part, is invested into the property price and appreciates.

Perhaps the biggest issue to resolve has been where in NZ to site a development.  I myself have lived in Auckland, Hamilton, Gisborne, Napier, Havelock North, Wellington, Christchurch and Dunedin, have driven pretty much the entire country from top to tail, and have stayed in just about every major and most minor towns and cities.  However, personal experience and preference was only a small part of the evaluation process.

The ideal location was defined as being not Auckland (which is a generic big city like many others elsewhere in the world, and alas also complete with fast growing big city problems, and property prices higher than anywhere else in the country), but not too far from Auckland.

It needed to be in a part of the country with a stable population (neither growing too fast nor declining) and with a good underlying economy (so as to give a strong base to keep property prices stable and positive for the future).  It needed to have reasonably good local shopping and services, preferably be on the water or close to the water, have good summer weather of course, beautiful scenery, and hopefully some other distinctive characteristics to add to the pleasure of being there during our winters.

One part of the country emerged as a clear winner.  Hawkes Bay - located on the east coast of the North Island, half-way down.  It has two medium sized cities (Napier and Hastings), a lovely summer climate, and is sometimes called 'the fruit bowl of New Zealand' due to its extensive orchards and market gardening.  Hawkes Bay is about four hours drive from the nation's capital (Wellington) and slightly more than four hours drive from Auckland (about a one hour flight to either city).  It has some lovely beaches, and beautiful mountains, and a massive wine growing industry and many lovely vineyards and wineries.  Here's a website with more information about Hawkes Bay.

There are several areas to choose within the Hawkes Bay district, and I've looked over zoning maps for just about every square foot of Hawkes Bay to literally leave no stone unturned in a search for suitable locations.

I did quickly find a brilliant and truly 'once in a lifetime' opportunity that exceeded every possible requirement.  Unfortunately, the unique appeal of the location also embodied its challenges - it is a massive 750 acre site requiring both very much more capital investment up front and a longer lead time to get the necessary development approvals (for a maximum of 96 half acre lots, the balance being protected).  If you've got a spare $20 million to invest in this, then we should talk some more!

Finding a more realistic sized and priced but still appealing opportunity is not easy, but also not impossible.  Think of it like fishing - you might spend all day dangling a line in the water, with a few nibbles, before finally hooking and landing the big fish you'd been hoping for.  You have no idea when you'll land the fish, but as the day goes on, you get smarter about where the fish are and how to attract them.

An achievable development would probably comprise about twelve condos, most being two bedroomed and a few having one or three bedrooms.  Two bedroom units would be about 1000 sq ft each.  These will cost at least US$200,000, and my thinking is to spend a little more to make a truly nice development than to have a bare bones development at the $200k per unit price.

It may also appeal to some people to buy a half or quarter share in a condo rather than to take full ownership.  This would clearly reduce the cost, while probably having little impact on your ability to get good use from the unit during our winter (depending on what you work out with your co-owners) and we may make a few of the units available on this basis.

One more comment about costs and value.  My major motivation in this is to get my own NZ winter home on the basis discussed - a place that is suitable for enjoying winters, and which will be cared for and hopefully rented out for me in my absence, together with associated services and support to make the whole concept of having a property in another country that I visit only once or twice a year a convenient process.  I will be buying land at the best price possible and negotiating with contractors to build the units at the most competitive price.

If you buy into the project at the planning stage, you are saving me all the financing costs of your unit and the selling/speculative costs associated with it.  These savings - passed directly on to you - represent the better part of a 20% discount off what the otherwise regular retail price of a unit would be.  In other words, a $250k unit would otherwise be expected to sell, once built, for about $300k.

We are still a very long way from having any certain proposal to put to you.  But - and again like the fish - when it does happen, it may all happen in a rush!  Because of the strong seller's market for desirable property in NZ, and because we'll probably have to build this development by buying already developed residential property and clearing the existing dwellings, it is generally not possible to negotiate a purchase option and then have some months for a leisurely evaluation.

Meantime, I'm working on a new website that will be crammed full of helpful facts and figures and other information about this concept and about living in New Zealand.  That should start to come on-line in the next week or two; I'll let you know the url when it is ready for preliminary viewing.

And now, the major action item for you :  Several people have understandably said they want to visit NZ to better understand the issues associated with extended stays there each winter.  With that in mind, I'm planning a tour of New Zealand, visiting Auckland, Rotorua, Queenstown, Te Anau/Milford Sound, Mt Cook, Christchurch, Picton, Wellington, and spending five nights in Hawkes Bay before returning to Auckland and heading home again.

The tour would be 'modular' such that you could choose to join and leave at any time.  If you just want to participate in the Hawkes Bay part, you can; and if you wished to stay longer in Hawkes Bay (before or after the main tour time) that is of course possible too.

Timing would be late October, with the official tour itinerary starting with travel from the US to NZ on Monday 24 October, and the official tour itinerary probably having a return from Auckland back to the US on Wednesday 9 November.

A ground cost for the tour, including twin share accommodation each night, all travel (mainly by coach, but also a flight between Rotorua and Queenstown, a train between Christchurch and Picton, and the ferry between Picton and Wellington) and touring within NZ and some meals is currently guesstimated at US$2400 per person (or perhaps a little less), and you'd need to add an airfare to get to/from Auckland (about $1000; my former travel company, Abel Tasman Tours, can offer you discounted airfares).

Would this be of interest?  Please let me know so I can decide to proceed with developing the tour or not.

I hope to see you in New Zealand - if not in October, then when we become neighbors in our shared Winter Home complex.

              David M Rowell aka The Travel Insider

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