Autumn Market Update
As temperatures start to cool, the market has also settled in recent months and, while the general market commentary around real estate in New Zealand has been fairly negative in recent months, the same cannot be said for the Queenstown managed apartment and lifestyle investment sector. Instead, we would describe the managed apartment and lifestyle investment sector of the Queenstown real estate market as being in a state of flux.
While it is expected that some pockets of the Queenstown real estate market may well follow the rest of the country in a downward direction, this is an important example of how the Queenstown property market behaves differently to the rest of New Zealand and has different fundamental drivers. It is also important to note that while a relatively small market, there are distinct sectors within the local real estate market that behave quite differently depending on the various economic and environmental drivers – so indices such as the HPI, median house prices, average sale prices, etc can be skewed by a small number of sales.
Here at IQ we’ve not seen a significant softening in the market. And while we’ve observed that sales in some sectors of the market have been at prices lower than we would have expected, we’ve also seen record sales figures achieved in the lifestyle investment sector.
On April 5th 2023 the OCR was raised 50 basis points to 5.25% and with inflation still running at over 7% it is anticipated that another increase is considered likely. One year fixed mortgage rates are sitting around 7%. These lending rates are significantly above the 4.5% to 5% returns typically earned by owners in this sector. So a straight investment scenario – when borrowing is required – does start to look less attractive in the current climate.
The counter to this is that we are seeing a much lower proportion of our buyers requiring finance. We are also seeing continued interest from Australian buyers where the NZ dollar is once again trending down against the Australian dollar since the latest OCR increase. So for our Australian buyers, especially those who are looking to come over and enjoy staying in their property as part of their overall investment proposition, Queenstown is still a very attractive option.
While we don’t envisage income levels rising to a point where they are commensurate to mortgage rates, they have recovered much faster than expected. This has translated to some owners, especially in the 5-Star space, receiving record incomes over the peak periods of July 2022 and Jan/Feb 2023. This is despite most major complexes having to limit capacity due to ongoing staff shortages. It needs to be mentioned here though that there is a sentiment amongst some in the local tourism sector that the high visitor numbers we are seeing at present are in part due to pent up demand from the last 3 years and that while strong numbers are still forecast for the coming winter season, we may see a softening later in the year as some of our traditional longer haul markets are taking longer to recover.
We are also continuing to suffer from prolonged worker shortages, so many accommodation, hospitality and tourism operators are still yet to return to 100% capacity. And this situation is not likely to resolve itself in the near future as while we are now seeing workers return to the area, there is an extreme shortage of rental accommodation available, so despite having work, many are leaving town as they simply can’t find anywhere to live. While visitors are, for the most part, fairly understanding of the situation our operators face, there is the potential for brand damage for the town as a whole, especially at an industry level where travel agents and wholesalers may start directing their clients away from Queenstown, especially in the peak seasons.
Alongside all of this is a trend continuing from the middle of 2022 where we are seeing very few owners looking to sell. Owners who have seen it through the tough times of Covid where income was essentially at or close to zero are now enjoying very strong returns. As such, the prevailing sentiment is one of reaping the rewards and “making up for lost time”.
We are still in fairly regular communication with owners across multiple apartment complexes and a number of holiday homes and investment properties – and do hope to have some new listings as we look ahead to winter, but we do expect options to remain fairly limited over the next 4-6 months.
