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Otago Lakes District – Queenstown and Wanaka, A remarkable outlook

The Queenstown Lakes District’s outstanding natural landscape will ensure continuing high property values as demand for a patch of some of the country’s most prime real estate remains strong from both local and overseas buyers, Andrea Milner reports.

Monday, October 16th 2006, 12:00AM

by The Landlord

Queenstown Lakes District Mayor Clive Geddes says the region currently has the fastest growing permanent population in New Zealand, and one of the highest annual growth rates in visitor numbers as well. The population is 34,500, rising to 70,000 during peak visitor periods such as Christmas.

The four seasons alpine and lake resort of Queenstown attracts over a million visitors per year, and is regarded as the gem of New Zealand’s tourism industry. The Wakatipu Basin is a lifestyle paradise with a diverse range of property, from large stations to small viticulture and lifestyle blocks.

The region boasts no unemployment or state housing. Geddes says at any given time, there are at least 200 job vacancies in Queenstown, “and what that means is there is absolutely no justification for any person to be on an unemployment benefit in the Lakes District. They either work, or they leave”.

Geddes says people are moving to the resort town permanently because they can easily operate businesses there. “In the last few years, we have developed world-standard broadband connections, four to five direct flights from Auckland daily, and five direct trans-Tasman flights weekly.”

“People want to live and work here because they enjoy the environment and what it has to offer,” says Geddes. “Despite a series of recent predictions that the market is in recession, we’re not seeing any evidence of that here. What we are seeing is that property is taking longer to sell in 2006 than in 2004-2005” – the median number of days to sell in June this year was 68 – “but there’s no sign that values are retrenching, or that the development community is striking market resistance to its product.”

“We also have continuing strong growth in the number of people who want to own property here either as an investment or for holiday accommodation.” The traditional strong buyer interest from Southland, Otago and Canterbury remains, with the number of overseas purchasers varying in statistical reports from 15 to 25%. “There are a significant number of properties sold in this district every year to people who regard them as investments and have absolutely no intention of ever living in them,” says Geddes. “Those people come from throughout New Zealand, Australia and further afield.”

“Investors really have to determine any investment opportunities for themselves, because it’s a real estate market that’s probably more complicated than any other in New Zealand. It is quite small, but quite complex, and the stakes are reasonably high, so any opportunity an investor sees here is one they have to examine very carefully on a case-by case basis.”

The risks for investors present in Queenstown are the same as those in any real estate deal: whether the market will continue to grow, or stall or even retrench if oversupplied with the type of property the investor purchases. “All of those risks are present in a greater degree to some extent than they are in the larger, metro markets,” says Geddes, “because there simply isn’t the choice in the range of property in the Lakes District that you have in the metro market”.

The district has faced major changes in the past as a result of cyclical urban growth pressures. Queenstown Lakes District Council (QLDC) senior policy analyst Alyson Schular says the local property market took a downturn in the 1980s and did not pick up again until the mid- to late-1990s, really taking off in the last five to eight years. “The market has really picked up and median house prices have risen from $275,000 to $480,000 in the last seven years,” she estimates. Geddes confirms that in each of the last two- to three-year valuation periods during the last eight years, property values have doubled.

Such jumps in property values have on-stream effects for the community in terms of housing affordability, which has led QLDC to investigate equity partnership and other assistance schemes. A household earning the district area median income of $67,329 can afford to purchase a home costing $260,000. Two bedroom homes in the area cost $355,000 to $400,000, which means a 25-30% gap in the household’s purchase ability. Up to 40 % of new households could face affordability issues.

QLDC adopted a strategy in June 2005 entitled ‘Housing our People in Our Environment’, and has undertaken research to identify tools available for the private sector to assist people into housing, “because in the end, it’s a private sector problem. People are either going to value their staff, or their businesses are going to suffer because of it,” says Geddes. Given the majority of Queenstown’s businesses employ only 20 people or less, it will be interesting to see what mechanisms they use to secure their workforce. QLDC has concluded a series of stakeholder agreements with local developers to help fund a trust it is establishing to manage affordability. “On the part of those developers, that’s been a significant contribution to funding the solutions we will be using,” says Geddes.

Schular explains the district’s growth management strategy examines existing zoning for business, industrial and the town centre, and how much more will be required to provide for the growing community over the next 20 years. “We will be experiencing continued high population growth, and need to ensure we have the zonings to support that.” Geddes said on concluding QLDC did not have many options to control the rate of growth, it shifted its focus to influencing where growth occurs, what it looks like, and how the costs can be met by the development community.

The District Plan anticipates increased growth in:
• tourism and visitor numbers
• hotels and visitor accommodation
• housing demand
• range and scale of retail activity, and
• demand for educational and recreational facilities such as schools.

Most of the growth will occur within the existing and proposed residential zoned areas. Existing areas are those around Queenstown itself – the Fernhill, Sunshine Bay, Kelvin Heights and Frankton Road areas. A number of plan changes have also just become operative, or are in the process of becoming so. One of these is for Jacks Point; a large development under construction about 10km out of Queenstown, which Schular says comprises housing and a village centre. Stage two development of the Milbrook resort subdivision near Arrowtown – a further 90 lots – has been proposed, along with further stages at Lake Hayes estate.

“We’ve also got the Remarkables Park area, which is a large, zoned area with a lot of capacity – being only 15 to 20% developed at present,” Schular advises. This is the district’s single largest piece of land zoned for development. A shortage of industrial land led QLDC to work on another plan change currently underway for the area known as Five Mile, which is Frankton Flats, to create new industrial and business zoning between the events centre, airport and existing industrial area. Earthworks start in the next few weeks for the retail segment. Frankton is also a preferred location for new primary and secondary school facilities, and is located at a central point in terms of the arterial road network.

With all the various plan changes, supply of new residential sections and subdivisions in Queenstown is growing, Schular says, and will continue to do so for the next five to 10 years.

Geddes also maintains there are no growth constraints arising from lack of land. “There is enough land zoned to enable growth to continue at its current rates for at least the next ten-year period. In the last five years, there’s been new land approved for zoning in the district capable of absorbing 2500 to 3000 dwelling units, so there’s a fairly strong supply of land that’s been zoned but not yet developed. Numbers of new dwelling consents (including apartments) are running at about 1000 per year – one of the highest rates in the country.”

An international tourist icon, 85% of Queenstown’s economy is based around tourism, followed by construction as the second-largest key industry. These industries are steady, Geddes says, but there has been a slowdown in the construction sector and in the rate of increase in visitor numbers, “so those two main sectors have been a little flat. However, we are in the middle of a really good ski season, so the visitor numbers will be picking up, but there is not strong growth predicted for New Zealand visitor numbers in the coming 12 months.”

“Over the next six months, the real estate market will clarify whether there is going to be any growth in construction for the following year,” says Geddes. Barry Robertson, director of Bayleys Queenstown, acknowledges the local real estate market is very dependent on what happens with the tourism industry, “and whatever happens to overseas economies that impacts tourism then affects the Queenstown market.” However he says in the last five years, other businesses have developed in the district, such as viticulture and the film industry, which help stability.

Robertson confirms residential sales volumes have recently taken a slight downturn, but this has been countered by increases in average property prices. “Queenstown obviously has one of the highest – if not the highest – median residential property price in the country” – $526,250 in June this year – “and sales volumes are down on the highs of 2003-2004, but the average price is still increasing.”

Robertson attributes prices to the quality of housing being built in the district, and the increasing number of high-end houses and apartments being developed and sold. He says there are good investment opportunities in the established suburbs of Sunshine Bay, Fernhill and Arrowtown. “The bottom line with the whole area over the next ten years is a growth scenario of 50% increase in permanent population and visitor numbers, and those trends are only going to create good opportunities for value growth.”

“We don’t have a lot of new subdivisions, which is another driver of high prices,” Robertson says, contrary to assertions from QLDC quarters. “There is very little new land coming on-stream in town, and you’ve got high development costs and increasing local body levies. Average section prices were over $300,000 in 2005.”

There are still good sales volumes for properties under $500,000 to $600,000, which are being bought by first home buyers and investors, according to Robertson, with the strongest part of the local market being in lifestyle property.

Rents have increased in line with property prices, Robertson says, and there is good demand for quality properties. “There’s a shortage of good residential rentals.” He says housing affordability issues are driving rental demand, as is the number of people involved in the town’s service industries. While there is an influx of ski workers from all over the world during the ski season, there is demand for rentals all year round. Desirable locations for rentals are anywhere close to the town centre

Doug MacGillivray, property manager of Resort Property Rentals Limited MREINZ, describes the letting market in Queenstown and Whakatipu as somewhat less frenetic recently, but says rents have remained firm, particularly for furnished two-bedroom winter accommodation at the upper end of the market – which is achieving $550-$600 per week. An average family home rents for $360-$500 per week. Seasonal visitors want to rent close to the central business district, but permanent residents will look at the Frankton, Remarkables Park, Lake Hayes estate and Arrowtown areas.

“The rental market is always a reflection of the housing market,” says MacGillivray. “A little while ago, the housing market went through the roof, and so did rents. Now they have levelled, like the real estate market.”

There are three significant new areas of proposed zoning for Wanaka, Geddes says, comprising developments of over 50 lots each – Riverside, where rural-residential land will be rezoned to township zoning; Peninsula Bay; and the adjacent Kirimoko development, where plan changes are afoot to rezone rural land for low-density housing. Harcourts Wanaka real estate agent Vicki Spearing says the Wanaka market peaked in 2003-2004, having grown exponentially for two to three years before that. It then levelled, but activity is presently high and she is seeing multiple offers being made on properties. The average house sale price last month was $444,000, and houses took an average of 76 days to sell.

Activity at this time of year is driven by the seasonal nature of the town, which sees a “huge” accommodation shortage and high rents. “Because people can’t get accommodation, sometimes if they return year after year, instead of paying extortionate rents, they decide to buy.”

She says new properties are selling well, particularly anything under $500,000. Entry level properties in the ski resort town fetch $300,000 to $500,000, and are always in demand, Spearing says. As well, anything with a self-contained flat is highly saleable because of offering a multiple income stream. Most rental properties are sold around Mt Iron and Anderson Road.

Section prices in Wanaka start around $175,000 to $180,000 for an 800m2 section in a new subdivision, Spearing says. A section with a lake view goes for $220,000 to $260,000, depending how good the view is. A one-acre section with a lake view would cost $600,000 to $800,000 or more.

Spearing says Wanaka’s high land prices mean investors don’t buy for rental returns, but for capital growth. They have other investments, want a foot in the door to the area, and can afford it.

“People have bought here historically for capital gain, but at the moment, they’re just buying because they want a base in the market before it grows beyond their reach. Most people investing here have already invested elsewhere, they’re not really looking for a rental return in Wanaka, they’re investing because they like the area,” says Spearing.

“We’ve had some very high growth in the area, and so the risk for investors is that they’re still buying at quite a high point in the market. I wouldn’t encourage people to buy thinking that they’ll get some good capital growth very quickly, because that’s unlikely to happen. In 2001 to 2002, you could have doubled your money pretty quickly, but it’s not happening like that now. The risk now is that if you pay too much when you buy, you may not resell quickly.”

However new subdivisions in the area such as Scurr Heights are selling well, and Spearing says supply of new residential sections and subdivisions is continuous; for example, “Infinity are due to release a whole lot more in Peninsula Bay, which will all have lake views”.

Strong interest from foreign buyers insulates the Lakes District to some extent from fluctuations in New Zealand’s economy. “Queenstown used to be the big drawcard, but Wanaka is now becoming more and more of a destination – its fantastic in winter and in summer. People enjoy being here, and as the population grows, there are more businesses and job opportunities, we’re getting new schools built. It’s not suffering the same problems as a lot of small towns.”

Investors provide short-term as well as long-term accommodation, Spearing observes, and employ letting agents to manage it for them. Sandy Appel, property manager of Wanaka Accommodation, says her company’s holiday rental accommodation portfolio has increased 100% since last August, and demand remains very strong; coming both from within New Zealand and overseas, with a large contingent of overseas visitors being from Australia.

“As far as permanent rentals go, there are a number of people moving to Wanaka who are looking at renting first, so there is a shortage of good, long-term accommodation,” says Appel. “The demand would be for an unfurnished house three or four bedrooms, two bathrooms and garaging.”

Appel herself is from Brisbane and was a real estate agent in Australia before coming to Wananka a year ago, having “fallen in love” with New Zealand. She describes Wanaka as very different from Queenstown – more laid-back and family-oriented. “That’s what its charm is, what attracts people to live and work here on a permanent basis.”

“It’s a lovely part of the world, and everybody seems to have a great time when they come here for a holiday – they re-book it.”

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.29 2.59 2.65
ANZ 4.44 2.89 3.25 3.39
ANZ Special - 2.29 2.69 2.79
ASB Bank 4.45 2.29 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.29 2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 2.89 3.19 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
HSBC Special - 1.99 - -
Lender Flt 1yr 2yr 3yr
ICBC 3.69 2.25 2.35 2.65
Kainga Ora 4.43 ▼2.67 ▼2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 2.79 2.79 3.15
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.29 2.29 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.09 - -
The Co-operative Bank - Owner Occ 4.40 2.29 2.59 2.79
The Co-operative Bank - Standard 4.40 2.79 3.09 3.29
TSB Bank 5.34 3.09 3.29 3.45
TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.73 2.99 2.80

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