Queenstown market volatile

He says the Queenstown residential market will consolidate and level off over the next two years, and the commercial market will level off and maintain existing yields and rents.

There is very strong interest in commercial properties, but supply is increasing, he cautions. “Five years ago industrial land values were at $150 per square metre and now they are up to $650 per square metre as a result of an acute shortage of land zoned industrial.” “There is a large imbalance between the volume of land zoned for commercial use and land zoned industrial, which the Queenstown Lakes District Council looks set to address with the proposed Frankton Flats zone variation. “In terms of future growth of the area we need that industrial land.”

Wood said there were substantial developments with consent in the pipeline in the overall market, which would result in considerably more growth over the next 10 years than the previous 10. Mac Property research shows there are approximately 1,100 apartments expected to be built over the next three years, excluding large-scale apartment developments such as Kawarau Falls, Remarkables Park and 5 Mile which are unlikely to be completed with that timeframe. The report says there are approximately 300 apartments currently under construction, of which 250 are expected to be completed during the next 12 months. Of those, approximately 60% have already been pre-sold off plans.

That leaves a balance of around 800 apartments that have not yet started construction, for a range of reasons.

“We think this market is at risk, a potential downside for some investors who have bought off plans in expectation of quick capital gains,” Wood says.

Projected returns on managed apartments are also a concern, Wood says. Owners should only expect net returns in the vicinity of approximately two to three percent for poorer performing or newer complexes, through to five to six percent for top performing and more established complexes. Wood predicts a slowing in the time to sell mid to lower range new apartments, in particular re-sales, and believes some proposed developments will not proceed.

In the residential market there is a risk of future correction between five to 10%, although it is currently balanced between a buyers and sellers market.

The high end residential and lifestyle sectors of the market, at $2 million-plus, continue to sell at premium to historical levels, and Mac Property sees this carrying on although at a lower sales volume and taking a longer time to sell.