The Queenstown Lakes District has experienced significant growth over the past decade, with its natural beauty recognised by around three million tourists who visit the district annually. The tourism boom and burgeoning confidence in the future prospects of the region has resulted in strong demand for property, with unprecedented levels of investment, rising values and construction activity across all sectors.
Property market reached its peak?
The current economic upswing in the region has been unusually prolonged, especially considering we are now a maturing district underpinned by strong economic fundamentals including a growing residential population. The tourism market remains strong, although guest night growth has slowed from the highs of 2014-2016.
Let’s take a look at the current and forecast property market trends, what’s looking positive and the potential risks.
The Queenstown property market appears to have paused for breath, however it remains steady. Several indicators point to the market being at or past its peak, however strong fundamental drivers remain in place (in particular commercial, industrial and tourism property sectors remaining strong) and continue to underpin property values, including:
- Interest rates – remain low
- Population growth – expected to double in the next 30 years
- Commercial, industrial and tourism property remain strong – retail rentals remain high; investment demand high
- New hotel developments have increased room supply with hundreds more rooms under construction
- Significant planned infrastructure development such as a number of roading upgrades, new primary schools, a possible new ferry terminal, gondola and hotel developments
- Commercial and residential (particularly lower value and affordable houses) construction – continued strong activity
Although higher than other regions, commercial property investor confidence in Queenstown has slipped from net positive 62% in March 2018 to 52% in March 2019. Residential property confidence has taken an even bigger tumble from 62% to 39% in the same time period.
Other potential risks to the Queenstown property market show that it is not immune from outside influences such as:
- Tourism industry growth rates ease – the weak Australian economy, slowing Chinese economy and Brexit are key potential triggers
- The foreign buyer ban has taken the edge off demand for higher value ‘trophy’ properties
- Income to debt ratios – incomes in Queenstown are relatively low but property values are high
- Bank lending policy changes plus the weakening Australian and Auckland residential property markets have created uncertainty and dampened demand
- Construction costs continuing to increase, threatening viability
- General market sentiment and investor confidence slowing economic growth
- Interest rate rises (unlikely in the short term).
Next 18 months
Although many factors are combining to dampen the property market, the predications show growth slowing and the market ‘resting’ rather than declining. Here’s what we might see in the next 18 months:
- Consolidation of residential property values
- Continuing strong construction activity
- Continuing increase in tourism numbers
- Cost of construction squeezing commercial developers and residential section buyers
- Low vacancy in prime commercial property
- Buyers’ market spreading throughout residential sector keeping rents high