Queenstown - an opportunity to strike gold?
Speculation on what will happen to the housing market in Queenstown post covid-19 is rife.
My wife and I were in the midst of house hunting when covid-19 struck New Zealand. We missed out on a place in Arrowtown at auction on 23 March, the day before our Prime Minister announced the imminent move to the Level 4 lockdown. Since then the property market in Queenstown has undoubtedly transitioned from a seller’s market to a buyer’s market.
So, where does this leave us in our quest to buy a property? The general consensus from locals and commentators is that prices will continue to drop, we just don’t know how much. An older friend of mine told me the old gold mining roots of Queenstown live on. In the post covid-19 market, if you are patient in your house hunting and look in the right places, you’ll strike gold.
Queenstown, Arrowtown and Wanaka were immediately crippled when the domestic and international tourism markets ground to a dramatic halt. Tourism drives our economy, more so than any other region in New Zealand. We are a resilient bunch and there’s no doubt that we’ll eventually recover, but for many who call this beautiful place home, it’s going to get worse before it gets better. Tourism operators, both big and small, have gone into indefinite hibernation laying off staff. Restaurants and retailers are struggling. Business activity has slowed. Unemployment rates are rising and many will be forced to leave the region altogether to find employment.
As our house hunt continues, we are keeping a close eye on the changes we are seeing to the property market. Most national and local commentators single out Queenstown Lakes as likely to be the hardest hit region in New Zealand. There are a number of reasons for this, and they’re all pretty compelling reasons to expect a further drop in prices.
- Firstly, before covid-19 hit, the property market in Queenstown was on an unprecedented hot streak. Property prices have been increasing year on year for the past decade, and the start of 2020 was no exception. In fact, it was starting to kick off again, with houses selling at auction and fetching way above reserve prices. Demand was simply outstripping supply. In January, a real estate agent told me plainly “it’s not worth that much” when I asked him about a house that had sold at auction the day before for an eye-watering price. Post covid‑19, the rules have changed. Plenty of potential buyers who were driving up prices have already fallen off (or have been forced off) the demand curve.
- Secondly, unemployment. With a significant percentage of our permanent population working in tourism, Queenstown Lakes will be hit harder than most. Our mayor is expecting unemployment to rise to up to 30%. Tragically we are already seeing the bigger players in town laying off virtually all their local staff. Over the past few years we’ve seen a lot of house pricing metrics focusing on population growth, undersupply of housing stock, and low interest rates, all of which have been pushing prices up. A metric we have not seen is housing prices vs unemployment. Why? Because unemployment in Queenstown Lakes has been so low (at or around 1%) for so long. Prices will drop as unemployment rises, particularly as Government covid-19 assistance packages, such as wage subsidies and mortgage repayment holidays, come to an end.
- Thirdly, Air BnB. The economy in Queenstown Lakes has adapted quickly to Air BnB and other short-term renting. So much so that many recently constructed homes have been built for this purpose with a detached flat designed for short-term renting. Banks have used this income stream as a form of income to lend against – a bank would lend more to a couple buying a house with a separate rental income that a house without. Sadly, that Air BnB market dried up literally overnight. This has led to a glut of short term rentals being urgently rented out on a long-term basis, which has already seen rents drop by as much as 40%. This leads to lower returns for investors, less serviceability of loans, and potentially some property owners who may soon find they have no choice but to sell. I’ve noticed a significant drop in the asking prices of these properties already – around a 20% drop since the start of the year.
All that said, there are actually a few reasons why it might not be all doom and gloom for the Queenstown Lakes housing market. Interest rates are, after all, at all-time lows. The mortgage repayment holiday schemes offered by the banks may give some people enough breathing space to find other solutions. We’ve already seen a number of houses drop their asking price by up to 20% over a very short timeframe – which is towards the top of the percentage decrease in the national housing market predicted by many economists – so perhaps the drop in price from covid-19 is already priced in? While there aren’t a huge number of distressed sellers at the moment, there are plenty of panicked sellers, so no doubt there’s already some deals to be had. And let’s not forget that Queenstown Lakes will always be a magnificent place that people immediately fall in love with, which is why my family moved here in the first place!
A buyer’s agent client of ours has told us she has seen a marked increase in offshore interest. This includes people wanting to move here permanently due to Covid-19, as well as those watching prices, waiting for a fall, and looking to strike gold like the prospectors of old. So perhaps in certain price brackets there isn’t such a shortage of buyers in Queenstown after all. Time will tell.
So for now my wife and I are watching, wondering when the right time to move is. We are lucky in that we’ve made the commitment to move here permanently, so we can take a long term view, rather than looking to make a quick buck off an unfortunate forced seller. We’ll wait until what we’ve been looking for comes along and go for it.
At TODD & WALKER Law we have a wealth of experience in real estate law, with particular expertise in assisting offshore purchasers acquire property in New Zealand. If you are interested in the prospect of acquiring property in New Zealand or would simply like to further discuss the state of the property market, please feel free to get in touch with us for a chat or contact us through toddandwalker.com.
From our team at TODD & WALKER Law we wish you all good health and all the very best in navigating through the uncertain times that lie ahead.
Principal and Director, TODD & WALKER Law