'Residential market consolidating': Colliers Queenstown valuers Heather Beard and Barry Murphy with Colliers' latest 'Otago Market Review & Outlook'

Interest rate rises are creating some uncertainty in the Queenstown residential property market, a real estate report concludes.

Colliers’ latest annual ‘Otago Market Review & Outlook’ says the confidence that characterised the market last year, ‘‘manifesting in high levels of sales and increasing values’’, has shifted to a less certain climate.

Listings have reduced and selling times have increased as would-be buyers go from ‘FOMO’ to ‘FOOP’ — ‘fear of missing out’ to ‘fear of over-paying’.

To date, Queenstown appears to have resisted the national trend of downward pressure on prices, however, the report says, ‘‘interest rate
increases may result in house prices softening, although this will only impact those who ‘need’ to sell’’.

Concerning people who’ve bought in the $800,000 to $1.5 million bracket, at low interest rates, local Colliers valuer Barry Murphy says as those rates roll over, ‘‘they’ll be looking at doubling their interest rate, which will be quite painful for a lot of families that have bought in the last two years’’.

‘‘And that’s where we may see some sales that may not necessarily be forced sales, but sales where the bank might have given them a nudge to say, ‘the affordability of servicing [your] mortgage is not there’.’’

Valuation director Heather Beard adds: ‘‘I think we’ve probably reached the cyclical peak, really, and typically the Queenstown market kind of follows what the Auckland market does.

‘‘What we’re seeing nationally is some pressure on property prices, and I think Queenstown will probably have some of that pressure come on soon.

‘‘I think there’ll be a bit of a consolidation of prices.’’

Another trend the report predicts is people buying new or established homes, rather than sections, due to ever-rising construction costs.

Beard: ‘‘There’s probably some risk in the market with people who are holding sections or awaiting titles where they were expecting a build
cost of ‘X’, and now they’ve got a build cost that’s some times 20 to 30% higher.

‘‘Certainly, construction costs have increased pretty significantly over the last 12 months, and we’re predicting this inflation pressure is going to continue.’’

Another trend is high rental demand.

Some Airbnb owners who put their homes up for long-term rentals during Covid are switching them back to holiday accommodation, while
rental digs are also being taken by people moving here and often working remotely.

The report also refers to some investors exiting the residential market due to increasing mortgage rates coupled with decreasing interest deductability through to 2024.

No discount for interest rate risk

Queenstown commercial and industrial markets are returning to pre-Covid rents and values, according to Colliers’ report.

‘‘Recent sales transactions are recording strong yields, with no apparent discount for future interest rate risk being factored in, further signalling long-term confidence in the region’s growth,’’ it says.

Prime CBD retail space is back close to 100% occupancy, while key money payments, which prospective tenants had paid in pre-Covid times to secure prime sites, are likely to return, the report says.

In the latest CBD sale, 61 Beach Street, comprising three levels with a mezzanine level, fetched $8.5 million compared to $5m in 2017, and the former BONZ premises in The Mall have been leased to Mountain Warehouse for $400,000 a year plus GST and outgoings.

In Arrowtown, lease deals have been negotiated at record rents, with instances of key money being paid.

Frankton’s Queenstown Central, Five Mile and Remarkables Park are nearly all fully leased.

Several town centre retail businesses, looking to expand, have taken space there, where larger premises are ‘‘more affordable and easier to come by’’.

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