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Queenstown: Past 50 Years

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(This Overview is an historic commentary and is updated at the end of each quarter.)

Prior to the early 1980's, Queenstown was a holiday village where property values had remained relatively static for at least a decade. At this time approximately eighty-five percent of property transactions were made to local and regional buyers - approximately half for owner-occupation and approximately half for investment/holiday purposes.

1980 - 1989
Property values began to rise in 1983 and then accelerate over 1984. Over this boom period significant speculative investment occurred and property values generally increased by a factor of between two to three times. The residential market was the first to move and with tourist numbers expected to increase dramatically in the short term, a demand increase and resultant value increase in developable tourist accommodation/servicing zoned property soon followed.

These properties were subsequently developed to apartment, motel and hotel complexes and with a favourable New Zealand currency exchange rate in the mid 1980's attracting overseas tourists, Queenstown's tourism and real estate sectors continued to experience buoyant times.  Demand was then placed on commercial and industrial tenancies - key money was evident and property values subsequently increased.  Rural lifestyle blocks showed similar demand and increases. Buoyancy continued generally until mid to late 1986.  The property cycle peaked at this time.

From late 1986 to early 1987, a decline in accommodation requirements together with the New Zealand economy experiencing more difficult times and with speculative influences generally removed from the market, values began to steady and then to decline toward true market levels.  The stock market crash of October 1987 and the resultant depressed financial climate significantly compounded the occurring cyclical situation.  The decline in demand together with the completion of some developments left many investors holding low or non-income earning property that they desired, or had to off-load and which then provided a market over supply of all property.

Over the subsequent three year period, property values generally fell to within fifty percent of their highs, to approximate 1985 value levels - however well located property remained basically unaffected. Few commercial/industrial sales occurred over this time - the majority of which did, were generally by anxious vendors or mortgagees in possession. By late 1989 the majority of pressured vendors had been removed from the market and together with an apparent rural economic recovery, lower interest rate expectations, the upgrading of Queenstown's airport to become jet and internationally capable, the announcement of some larger development projects and higher projected tourist numbers, the Queenstown property market began to show signs of cautious optimism.

1990 - 1999
In the subsequent year however, there was still an over supply of property available and forced sales continued, generally to owner occupiers and South Island based investors.  The cycle turned for the rise in early 1991, resultant in part from an optimism in falling interest rates, but to a greater extent through an increased enquiry/purchasing from off-shore - mainly in prime lake front, commercial and tourist accommodation property.  These off-shore purchasers entering the market acted as a significant catalyst to recovery.  In effect this period represented a "discovery" of Queenstown by the offshore market.

Over the subsequent three year period of strong growth, a lack of supply and dramatic increased enquiry and demand saw all property show significant realty growth.  The market peaked in the latter months of 1994.  Demand eased in 1995. Demand continued to ease more markedly over 1996 generally fuelled by factors including an increase in mortgage interest rates and the level of uncertainty surrounding the 1996 general election and subsequent inaugural coalition government. Over this period market values dropped for most property.

Notification of the proposed District Plan in October 1995 which sought many potential changes and restrictions relating to the utility of land throughout the district created further uncertainty, particularly on Rural zonings.

This soft demand "buyers market" situation generally remained over 1997, 1998 and into early 1999, due largely to the ongoing uncertainty as regards global currency and equity markets and the resultant caution by prospective purchasers when considering any purchase. Subsequently, there appeared emerging evidence of growth in global economies and of an Asian economic recovery, and together with downward pressure and general stability on New Zealand interest rates, and an emerging overall confidence within the Lakes District, an increase in purchaser enquiry and resultant sales volume occurred.

2000 - 2003
The local property cycle generally "bottomed" in mid 1999. Subsequently, with an increased enquiry and a general lack of reasonable supply, values firmed and a "sellers market" began to emerge. Although reasonable confidence remained within local retail, tourism, construction and real estate sectors over the latter half of 1999 and into early 2000, the fall out from the "tech wreck" in March 2000 caused residential market enquiry/sales to again quieten and a buyers market again became prevalent. This market quietening, which continued for most of 2000, generally reflected the real estate climate nationwide.

Nationally, residential sales volume over this time was the lowest for a decade. In the latter months of 2000 property stock was in reasonable supply and sales volumes increased although the market remained somewhat anxious in direction and commitment due in the main to the continued uncertainty as regards global economic concerns and the resultant stability of the New Zealand currency, and of slower growth and increasing inflationary prospects. Local property values generally remained steady over this time.

Subsequently, business confidence increased due mainly to strengthening export sector returns and together with the Reserve Bank's easing of interest rates, confidence again returned to the property market and local property values began to "firm" within a seller's market of strong enquiry, limited supply and good sales volumes. This strengthening continued throughout 2001.  Values around this time generally reflected the mid 1990's highs. Whilst the local property market illustrated caution in light of continued global economic growth concerns, a strong sales volume occurred for the year.

Heightened anxiety subsequent to September 11 further impacted on global confidence, market profitability and the formal actualisation of recession. Subsequently, US economic data - particularly a better than expected employment report released in early March 2002, signalled a significant change in business conditions and sentiment and also consumer sentiment. It appeared an economic rebound had come sooner than expected. However, sustained uncertainty throughout 2002 from circumstances including some slack corporate profit results and forecasts, job market weakness, corporate credibility/investor confidence issues, weakened consumer sentiment, a weakened US dollar and ongoing geopolitical concerns created severe market volatility, with investor anxiety causing the S & P 500 index to suffer its worst quarter (September) since 1987 and its worst six months for 28 years.

However, notwithstanding the 2003 New Year rally in the US sharemarket upon some better than expected and credible 2002 third and fourth quarter corporate earnings reports and increased consumer sentiment and some initial optimism that the bear slide may have ceased in mid October, the mood on Wall Street remained sober and volatile upon an uncertain future.

Although the economic worst generally appeared to be passing (albeit slowly), investors continued to monitor consumer confidence sustainability and topline growth expectations and the resilience of periodic rally spikes. Whilst sentiment generally leaned to a positive outlook, upon improving world prospects with economies showing some promise, it was evident that a sustainable economic recovery remained some way off and that it may not be realised until late 2003 / early 2004.  Strong growth was expected during 2004 and 2005.

These economic and terrorist events did not slow our local property market over 2002 and 2003 - rather, it continued within a steady and seemingly robust bull phase of strong demand, limited supply and increasing values. Local sales volume and value growth over 2001, 2002, 2003 and 2004 and more particularly from early 2002 to late 2004 was significant. Prospective purchasers at every price level continued to compete strongly for the limited supply. This period represented the third and strongest value growth phase for the local property market.  The strength and growth subsequent to September 2001 was unprecedented. Enquiry/demand for upper end property was  unprecedented, as has offshore interest. This has created substantial value growth to the upper end sector which has resulted in the evolution of a multi-level market from that of the broad mono-value one of the recent past.

Whilst some market "heat" eased briefly in early to mid 2003 over the Iraqi war and SARS periods when purchasers became more circumspect with their offers, the market over 2003 remained strongly confident and undersupplied with a continuity sentiment. Values increased accordingly. 

This significant local realty growth over 2002, 2003 and 2004 was in line with the national trend where the National House Index increased by 22% over 2003, the highest annual growth in 13 years. This occurred from a combination of factors including; a favourable currency exchange rate at below the long term average of, 0.56 NZD/USD, very strong domestic economic growth ( an above NZ average 3.8% per annum compared with our main trading partners at a below average 2.8% per annum ) providing high revenue, profitability and capital expenditure, low interest rates, high consumer and business confidence, high net migration, increased construction as a result of the 1998 recession lag, global economic and geopolitical concerns and high international exposure from such events as The Lord of the Rings and the Americas Cup.

A cyclical correction to some of these factors became evident in the latter part of 2003 and together with the continued strength of the Kiwi against the Greenback, this resulted in a softer 2004 sentiment of a slowing market which appeared to cool the national property market.

2004 - 2005
Despite a more circumspect market nationally with a downward/levelling trend in sales turnover (number of sales) and a longer time to sell trend becoming evident, prices continued to rise over 2004 and 2005.

However, over this time it was widely accepted that the national and local markets were trending to a cyclical buyers market consolidation. This underlying sentiment continued despite the market continuing to defy predictions and surprise on the upside, due mainly to very high consumer confidence from the tightest labour market in 30 years underpinning consumer willingness to spend, stronger than expected commodity prices underpinning regional markets, slightly stronger net migration than expected over the latter part of 2004 and throughout 2005 but primarily the fierce mortgage interest rate competition between Banks together with signals along the way from the Reserve Bank that any floating interest rate rises would be minimal.

Over this time it was anticipated that these upside influences would dissipate and that data would then more realistically confirm the past two years sentiment and underlying trend, with sales turnover steadying/declining, median prices steadying/softening, the time to sell steadying/lengthening and the sales to listings ratio steadying/declining. Notwithstanding this, during the second half of 2005, the market was in reasonable equilibrium, with median values continuing to hold firm on the back of continued robust economic data and a general shortage of stock together with both vendors and purchasers showing a degree of determination on price. A reasonable purchaser enquiry remained for realistically priced stock in all property categories and price ranges.

2006 - 2007
Throughout 2006, and the first half of 2007, the local and national property markets generally continued in reasonable equilibrium similar to that of 2005. From May/June 2007 and onwards, the property market nationally continued to trend to a steadying/softening, with sales turnover dropping, time to sell lengthening, and the annualized median sale price growth easing. Stock supply remained in general equilibrium and the median sales price generally held, underpinned by both vendors and purchasers illustrating utmost determination on sales price.

2008 - 2014
Throughout the first quarter of 2008, the national and local property markets actualized to a buyer's market. All market benchmarks softened. Whilst stock supply increased and buyer hesitancy became more prevalent, especially in light of continued global credit concerns, realistically priced stock in all property categories and price ranges continued to sell. During 2011/12 any urgency in the market was generally replaced with a return to reasonable supply/demand equilibrium. Any reasonably priced stock continued to sell. Sellers were realistic with pricing and buyers were committing if fair value was perceived. From early 2013 a shortage of stock became evident. Buyers remained willing to purchase any correctly priced property. In late 2013 a marked increase in buyer confidence and enquiry became evident. This continued throughout 2014 and during the first half of 2015.

2015 - Present
Buyer confidence and activity intensified in mid 2015. The shortage of stock continued. Multiple offers became commonplace and Sale by Auction became a preferred method of sale. Sale prices lifted. This ‘seller’s market’ strengthened during the second half of 2015 and continues.

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