Queenstown: NZ's Boom Town
It’s understating facts to say the Queenstown Lakes District region is an x-factor place. It’s New Zealand life with glamour and excitement added in equal measure.
Wednesday, August 26th 2015, 12:00AM
by The Landlord
It stands to reason long-term property investors should listen up. If regions were people, the Queenstown one – incorporating Frankton, Arrowtown, Lake Hayes and Wanaka – would be the genetically endowed.
Averaged out, capital gain factors are perennially strong here. Internationally renowned scenic beauty and adventure tourism say why.
High visitor demand has precipitated new flights, more directly from eastern Australia in particular. According to Colliers International 2015 statistics, aviation arrivals in Queenstown have risen by 40% since 2009. Increasingly, “downtime” months no longer happen.
Long-term resident Lindsay Borrie, APL property valuer, can remember years past when in May Queenstown was just waiting for winter fun. Now tourism is less purely seasonal, making it a safer property investment proposition.
Tourist spend in Queenstown alone has been estimated to exceed $1.2 billion annually, with as many as 57,000 in the daytime population during peak months and at least 48,000 in slightly cruisier months. Around 20,000 more people a day are projected in the next decade.
Tourist attractions
More attractions are on offer, with mountain-biking nudging the top of the list. Skiing was always strong, but that’s winter only, and golfing has become increasingly prominent in summer with Millbrook and The Hills courses attracting golfing tourism.
The main news for property investors is that the entire lakes district region has recently enjoyed several years of strong development, one which has a distance to run before producing any oversupply. Development activity has spurred on lifestyle activity, which has only created more development demands.
Investors, however, are faced with the same problem that worries would-be residents. Entry-level into this Queenstown market isn’t cheap. It’s second only to Auckland property in value. Median house value is now within cooee of $700,000, at $688,000, whereas 12 months ago it was closer to $598,000. The median for managed apartments here is slightly more manageable, in the high $300,000s.
The cheapest way to buy new is to buy off the plans in a new subdivision development outside walking distance, according to Harcourts real estate agent Shaun Casey. In this case a $50,000 deposit could buy you a family home of three bedrooms, two bathrooms and a double garage. The demand for rentals like this is strong, he says, with families often happy to sign for two to four years. Wary of buying off-plan? Wait for completed construction, and the same house will be $60,000 or $70,000 dearer. If you’re wanting to invest in the family-home market, good proximity to schools and the zero-fees Southern Institute of Technology campus means being in or near Frankton. Other locations can fall short on educational facilities.
Big-box retailers
In fact, Frankton’s been a hot-bed of development in recent years, with new supermarkets, hotels and increasingly, big-box retail being added to the mix.
Buying new isn’t as often on investor radar as buying existing property and maximising rental yields.
The ideal investor property in Queenstown, one might assume, would be the slightly tired house with many double bedrooms and bathrooms all within an easy walk of the Queenstown CBD. Even ‘tired,’ that proposition would not come cheap. Within five minutes of the CBD there are “very few” offerings for under $700,000. For the well-heeled investor careful about compliance issues and insurances, not a lot could go wrong. But for a smaller initial outlay, areas further from the core of Queenstown are also solid investments. With family tenants rather than a conglomerate of singles on low incomes, a family home could prove less hassle to administer.
Room rates in Queenstown are a well-rehearsed conversation, given that a large percentage of tourism workers earn on average just $17 an hour. Casey quotes $225 as the basic double room rate, with a double room boasting an en suite fetching between $260 to $280 a week.
Traditionally the plan might have been to buy a two-bed, one bathroom apartment within walking minutes of town. Even the basic will now be $600,000 or more, making yield not flash.
It’s because of this region’s beauty and adventure characteristics that pay can be so low. Workers are willing to sacrifice money for place, and better leisure. So while market predictions for all lakes district rental yields are for escalation, sometimes that’s only possible with crowded properties.
Wow feature safe bets
‘Lifestyle investing’ is a popular investment category here. That’s renting a property for six months annually in holiday lets, and staying there in other months. One caution: a ‘tourism tax’ applies after 90 rented nights. Also, because of property management and cleaning fees, and because lifestyle investors compete with hotels, locals say those places with ‘wow’ features are the safest bets.
If there’s a spa pool on the deck with fabulous lake views, or an indoor gym…that’s the green light for short-term lets.
Also, now that mountain-biking in the region is a magnetic force particularly for the wealthy 40-plus age-swathe, holiday lets anywhere near such trails are marketable investments.
The picture in Arrowtown shows the same rental shortages yet glittering capital gains. It’s become even more expensive than Queenstown, according to Richard Newman, principal of Ray White, Arrowtown. That the stunningly sweet, historic gold-mining village is land-locked with three natural golf-course-marked boundaries currently equals a shortage of property to either buy or rent. Median value here is now $880,000. Many of the cute or basic holiday baches or ‘cribs’ have been replaced by bigger, swankier dwellings. Investors here tend to be wealthier kiwis; often Aucklanders, some Australians. They might buy and initially rent their places out, to use them in the summer and in retirement. Well-off families are able to rent, but it’s increasingly difficult for residents to find smaller, cheaper accommodation and pay $450 to $480 per week, as opposed to $1000 weekly for a nice family home.
Some residents oppose a mooted subdivision for Arrowtown which could see sections selling for prices similar to Frankton’s ‘Shotover Country’ subdivision.
Internationally attractive
“Capital gain here rises about 10% a year on average in Arrowtown, and we’ve just recently experienced another surge,” Newman adds. “Investors wanting ready returns need to buy in Dunedin, Wellington and Hamilton. Here it’s about great capital gain. That, plus lack of stamp duty and good marketing, make us internationally desirable.”
Arrowtown residents are nevertheless still predominantly kiwi, Newman believes. Professionals like architects and consultants base themselves here for the lifestyle, and travel all over for work.
Somewhat confoundingly, Wanaka also has a longstanding lack of rental property, despite being less land-locked and having recently expanded. New subdivisions have meant outlying districts such as Albert Town and Luggate are now more like Wanaka’s perimeter, with a plethora of one-acre properties in between. A family-sized home in Albert town is no longer a cinch. A four-bedroom Albert Town house now costs around $600,000, where a similar offering in central Wanaka may cost just $25,000 more.
In May 2014, there were 45 sales – 19 sections and 26 house sales – for the Wanaka district. This year by comparison there were 72 sales – 33 sections and 39 houses.
Golden egg
For the long-term property investor, the obvious golden egg would be a traditional kiwi bach on a Wanaka quarter acre, and adding another rentable unit to the site. Anything bigger than 900 m2 is subdivisible once two units exist there – a future-proofed investment proposition.
The director of Home&Co Property Management, Colleen Topping, says she believes two dwellings on one section is the yield secret in Wanaka, particularly if both properties fulfil most tenants’ wish-list of three bedrooms, two bathrooms, a garage, double glazing, log fire and secondary heating source. Properties which tick these boxes have been in short supply for the past two years, even as rents steadily increase and are set to continue their climb.
After collating rental statistics across all tenanted properties in the region (Wanaka, Hawea, Luggate, Albert Town) Colleen finds a 14% increase in “less than a year.” Average rent across all houses, furnished or unfurnished, is now $432 weekly, while the previous average was $376.
Remember, market predictions all point to continued demand and continued rent rises across the whole Queenstown Lakes District. Good news for investors with strong equity!
Summing up the Stunning Southern Lakes Market:
Tourism growth has been and will continue as the region’s biggest economic engine and population growth for Queenstown and Wanaka is in continuance phase for several years yet.
Queenstown’s international airport is one of the fastest growing in Australasia, with 40% growth in passenger numbers since 2009. (Colliers International, Market Review)
Expansion mode for the lakes district has meant a raft of new well-subscribed subdivisions for each Queenstown and Wanaka; new office space, hotels, schools, big-box retail, supermarkets, plus new mountain-bike trails and ski-field upgrades, eg, Google Five Mile Retail Centre, Shotover Country, Jack’s Point, The Landing Remarkables Park, Southern Institute of Technology Frankton, Meadowstone’s Alpha Series Wanaka, Northlake, Kirimoko, Peninsula Bay, Riverside Park, and Three Parks Wanaka.
Housing shortages Queenstown and Arrowtown have in the past year alone led to significant price gains. Wanaka is still rapidly expanding its housing stock via subdivisions such as the latter six listed above.
An acute shortage of affordable rentals for low-paid tourism industry workers is a perennial problem in the Queenstown Lakes District. Rental rooms are usually shared. However rent levels across all property brackets in all lakes district regions are rising.
Hotel room rates are increasing as effective international marketing continues to produce a shortage of tourist accommodation.
Investor confidence in this region is high, with projections of the region’s population increasing substantially over the next decade and beyond.
The shortage of rentals in Wanaka is across the spectrum of rents – from inexpensive to $1million plus properties. The most sought after rentals with the biggest demand would be a standard three-bedroom home with two bathrooms and a garage. Tenants prefer houses with double glazing. Logfires are by far the most popular form of heating here with many house owners now installing a heat pump as well to act as a second source of heating. We would have no problem finding good tenants if properties tick those boxes!
The properties I have seen yield the best returns for investors here are those with two dwellings on the section. From an ease of management point of view I would make sure each is separately metered for power and that each place is a bit private from the other. Most new tenancies in the Wanaka area are fixed 12-month tenancies. We have seen a steady increase in rents over the last few years. The current shortage dates back two years now.
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If you are looking to invest in Queenstown contact Harcourts
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