Otago's property boom ranges from recovery to crisis, to speculators, inflated prices, hard-pressed first home buyers and visions of affordable housing subdivisions. Business reporter Simon Hartley takes a snapshot from Colliers Internationals' annual property review, with Colliers' Dunedin-based associate director Dean Collins.
Otago's property market, commercial, retail and residential, is thriving, but Queenstown, Wanaka and Dunedin are all at different parts of the upswing cycle.
Colliers International annual review and outlook for 2016 has Queenstown "peaking'' from unprecedented growth in tourism and its 3.3million guest nights, but with speculators cashing in on the lack of sections.
Wanaka's residential supply is outstripped by demand, pushing first-home buyers further afield, while Dunedin's commercial sector is in "recovery'' mode, with growth not seen for about seven years.
Dean Collins, Colliers' associate director of commercial sales and leasing, a co-author of the report, said Queenstown expansion, across all property sectors, was being driven by the unprecedented growth in tourism.
"Prices continue to skyrocket and demand exceeds supply across the board.
"Some areas, such as rental accommodation and visitor beds, are reaching crisis point,'' he said in the report.
Based on historic performances, Mr Collins said Queenstown's property market was "approaching its peak'', but he expected it "to stay stronger for longer'' in the present cycle because of the "exceptional growth'' in tourism and the population, which would drive demand and prices higher.
"Further expansion, which we expect over the next two or three years, will be based on investor confidence due to the rapidly growing tourism sector, and growth in rental returns,'' he said.
He said about $200million of commercial construction was under way around Queenstown and a further $200million was proposed for the next two to three years.
"The majority is in Frankton Flats, with housing subdivisions, major retail centres and industrial parks, along with the airport and soon to be new high school,'' he said.
Four key projects were either under way or planned to start during the next three years: Remarkables Park, Five Mile, Shotover Park and Queenstown Centre.
Because of the demand and development, Mr Collins said infrastructure projects were totalling about $70million for construction, including replacement of the ageing Kawarau bridge, a new sewage treatment plant, airport investment and traffic lights.
"Investment into a transport network is desperately needed,'' he said.
Demand was up for all residential house brackets, from below $500,000 to more than $2million.
Median prices during the past 12 months had houses up 23% at $800,000, apartments up 18% at $550,000, managed apartment prices flat at $345,000, and section prices up 8% at $280,000.
Mr Collins predicted the number of residential house sales for 2016 would rise from 80-90 a month last year, to 90-100 this year.
The number of sections sold in 2013 was 152, followed by 192 the next year and 301 in 2015.
Mr Collins said there was a lack of titled sections, speculators were in the market and section contracts were being on-sold for "inflated prices'', before settlement.
While 3800 affordable homes were planned for one subdivision, that would only partially alleviate pent-up demand, as the release was likely to be staged over several years, Mr Collins said.
In Wanaka, the increasing demand for housing was leading to price rises and rental accommodation shortages as tourism numbers increased and the population grew.
"Entry-level home buyers are becoming priced out of Wanaka and Albert Town and are looking to Lake Hawea and Luggate as more affordable options,'' he said.
Housing demand was set to exceed supply, but Mr Collins said section supply should improve when titles were issued in new subdivisions later this year and into 2017.
"There is a shortage of listings across all value brackets, which is placing pressure on values.
"Strong population growth in the upper Clutha has created a long term rental property shortage, particularly for good quality family accommodation,'' Mr Collins said.
He predicted residential construction would ‘‘remain strong for the foreseeable future'', given increases in both consent volumes and total housing sector vales.
In Dunedin, the commercial property market was continuing to recover and sentiment was becoming increasingly positive, but Mr Collins noted a decline in the university roll meant increasing vacancies in student accommodation properties.
University rents were "flat'', following several consecutive years of increases, and with students demanding higher quality accommodation, there were more vacancies of poorly maintained properties.
While overall student vacancy rates had "edged higher'', investment property demand had "significantly increased'' from out-of-town buyers, which compressed rental yields further because of limited supply.
He said the combination of low interest rates and a growing number of investors from offshore, local institutions were keeping office property conditions "strong''.
"Dunedin's commercial property market continues its recovery, with construction, investment activity, confidence and positive tenant demand across the sectors driving growth not seen for the past six or seven years,'' he said.
Mr Collins expected capital values to keep increasing and growth to continue over the medium term across all the property sectors.
"The trend towards upgrading and refurbishing existing buildings continues, with the warehouse precinct between Queens Gardens and Police St a notable centre of activity,'' Mr Collins said.
"Refurbishment work is bringing more office space to the market, with much of it being taken up,'' he said.
Vacancies in retail properties in Dunedin had been higher than usual, but the market was picking up and vacancies were declining, especially in prime areas, he said.
Prime industrial property was becoming more popular with investors, with a trend towards new developments continuing as business confidence grew.
"There's a continuing gap between prime and secondary properties, with prime commanding high rents while secondary buildings are experiencing higher vacancy rates,'' he said.
