Market Report Highland Real Estate Group Ltd Licensed Agent REAA 2008

edition number two 2017 Otago Market Report Highland Real Estate Group Ltd Licensed Agent REAA 2008

With you all the way. • External factors restricting property supply PROPERTY MARKET • Two-tier market emerging with high-end property rising in value • Long term consolidation expected

OVERVIEW Several factors are impacting activity in Otago’s residential property market in mid- 2017, including the upcoming general election, the phase of the cycle in wider New Zealand and a traditional winter lull. With sellers reluctant to bring property to the market amid interest rate uncertainty, the severe lack of supply in Dunedin, Central Otago, Queenstown and Wanaka is intensified. Moreover, demand throughout Otago remains high and so we’re experiencing a prolonged period of sustained growth, albeit with a steadier rate of value increase than in 2016. All reported areas except South Otago have recorded a reduction in sales volumes in the first six months of 2017 in comparison to recent years.

Plans are in place to supply more residential land in Queenstown alongside a simultaneous focus on commercial expansion, while considerable residential development is forecast for Wanaka in the next year which should encourage the steadying of values. A two-tier market is developing in these areas with property at the upper end of the spectrum continuing to achieve new value highs and the mid-level market consolidating due to affordability issues.

In Central Otago, low supply has driven record values in the past year and in the short term dwellings are expected to continue achieving strong prices while more residential The Otago population is rising at a subdivisions are being developed, due for release at the end of the year. rate of 0.64% per year. In Dunedin and South Otago, limited supply is driving continued growth and well- located, high quality property is particularly sought-after. Entry level buyers are also active in both areas and buying sentiment will continue to be characterised by a desire to obtain good quality property in sought-after locations.

In contrast to the common perception that winter is a slow time to sell, there’s unlikely TOTAL to be a better time to test the market as you’ll join the trend of rising values in Otago SALES IN OTAGO and benefit from strong buyer interest with very little competition. DWELLINGS 1991 THE CYCLE OF REAL ESTATE VALUES SECTIONS Rising Real Estate Values 12 319 Easier Money 1 11 Rising Interest Rates PEAK

Y CURRENT MARKET STATE Building activity decreases ER S 2 Stong residential V LO We use median values rather than O W building activity 10 C average values in line with REINZ’s E D R O recommendations. This is because G W Rising Exchange Rates N N

O one anomalous figure can skew Section sales increase R

the average value whereas the

Section sales decrease

9 median “mid-point” value is less

subject to irregularities. Medians Property shortage V E

are a more accurate reflection of E

R S

the property market. O

4 Surplus of rental property

Falling Exchange Rates

8 and plentiful supply of property

N V I for sale

E G R E Y

Increase in rental demand B Tighter Money Falling Interest Rates 7 5 6 2017 Falling Real Estate Values OTAGO MARKET REPORT edition no.2 WANAKA MARKET

• Economic factors keeping market strong • Significant investment from non-local buyers • Easing value growth after $1m+ highs of 2016

Economic, tourism and population influences are despite these areas also tracking significant lifts in driving continued growth in the Wanaka property value over the last 12 months. The total value market despite a lack of available property and the of annual residential consolidation of values this year. Tourism and immigration is strong in Wanaka building work in and, as such, strong investment is coming from Wanaka is Although a similar number of dwelling sales were outside of the region — just 38 per cent of this completed in Jan-Jun 2017 and 2016 (191 vs 199), year’s buyers were Wanaka locals against 42 fewer than half the number of sections were sold per cent from elsewhere in New Zealand. The $79,436,454 which has caused an annual rise in median land economic development of Wanaka, which value of $100,000. Monthly reported figures for includes significant investment in the ski sections are volatile as titles are issued during industry, will continue to attract nationals and construction and completion of subdivisions, provide further employment opportunities, thus but purchases are being steadily and reliably increasing competition among buyers while concluded in varying locations and price ranges — also underpinning the positive rental market for The Statistics even if they’re no longer met with queues of buyers investors. However, with LVR restrictions affecting on public launch day. A substantial amount of land borrowing capabilities, investment is inhibited and OUTLOOK is awaiting release in late 2017 to early 2018 and, it is improbable that the short rental supply will FOR THE REST OF 2017 with many still keen to get their hands on Wanaka be supplemented in the near future: rental rates land, sustained pressure on section prices is will continue to rise with temporary and seasonal unlikely to let up until this becomes available. workers hit hardest. MEDIAN DWELLING PRICE Dwelling values on the other hand have steadied, The desire to live in Wanaka remains exceedingly $790,000 with a six-month median of $790,000 — just a five high and new value benchmarks are still possible MEDIAN per cent increase on the previous six months. First if competition is encouraged with excellent SECTION PRICE home buyers may feel the market has mercifully presentation and strong marketing. In the long $412,000 relented after the outstanding value peaks of $1m+ term, value growth is anticipated to ease in MEDIAN last year. Luggate and Lake Hawea are identified as reflection of the softening New Zealand market. WEEKLY RENT more inexpensive options for entry-level procurers $600

Median sale prices have been calculated from Jan-June 2017 Source REINZ

WHERE ARE OUR BUYERS FROM? SECTIONS 400 VOLUME OF SALES DWELLINGS

OVERSEAS 350

300

250 NORTH ISLAND LOCAL 200

150 NUMBER OF SALES

OTAGO 100

REST OF 50

SOUTH ISLAND 0 JUN-07 DEC-07 JUN-08 DEC-08 JUN-09 DEC-09 JUN-10 DEC-10 JUN-11 DEC-11 JUN-12 DEC-12 JUN-13 DEC-13 JUN-14 DEC-14 JUN-15 DEC-15 JUN-16 DEC-16 JUN-17 6 MONTHLY 2007- 2017 SOURCE REINZ 3 View online at www.harcourtsotago.co.nz QUEENSTOWN MARKET

• Two-tier market developing with top end still growing • Uncertainty in election year limiting supply of property • Positive outlook in the medium term

A two-tier market is developing in Queenstown values is encouraged by the slow release of new as the backdrop of a cooling national market subdivisions. More apartment developments inhibits mid-market growth and high end are being proposed with confidence that the property continues to move quickly and achieve demand is there and homes in Lake Hayes Estate premium values. and Shotover Country are now hitting $1m, meaning many first home buyers are looking Critical lack of supply has long been the outside of the Wakatipu for more affordable diagnosis in Queenstown, causing extremely options. 64,654 strong growth across all price brackets for MONTHLY AIRPORT ARRIVALS several years. However, uncertainty is evident With comparable values to Auckland, among potential sellers in 2017 with sales Queenstown is often likened to the big smoke. volumes taking a hit in the first six months of But with Queenstown’s lack of buildable land, this election year — the number of completed the discrepancy between demand and supply sales is down 34 per cent compared to last year. is acute. Additionally, the unique tourism and Demand, on the other hand, remains high, immigration proposition continues to drive The Statistics prompting a median dwelling value increase growth whereas Auckland has recently seen from $745,000 in the first quarter of 2017 to a downturn in these areas. In reality, the two OUTLOOK $857,000 in the second. markets are now in very different places: we FOR THE REST OF 2017 predict Queenstown’s long-term outlook to be The family market in particular is restricted by one of sustained reliable growth while Auckland a lack of affordability, and people in the middle leads the downturn in the general New Zealand MEDIAN pricing bracket are no longer willing to pay market. DWELLING PRICE premiums. High-end homes on the other hand $890,000 are moving quickly and buyers in this category In the medium term, Queenstown’s market MEDIAN are willing to spend more for extra special, wow- will remain positive with significant growth SECTION PRICE $535,000 factor property. continuing after a fleeting period of uncertainty regarding the election. MEDIAN Section sale numbers appear to have taken a hit WEEKLY RENT in the official figures but in fact many have been $775 sold without titles, while constant growth in

Median sale prices have been calculated from Jan - June 2017 Source REINZ

600 VOLUME OF SALES SECTIONS WHERE ARE OUR BUYERS FROM? DWELLINGS 500

400 OVERSEAS 300 LOCAL

NUMBER OF SALES 200 NORTH REST OF SI ISLAND OTAGO 100

0 JUN-07 DEC-07 JUN-08 DEC-08 JUN-09 DEC-09 JUN-10 DEC-10 JUN-11 DEC-11 JUN-12 DEC-12 JUN-13 DEC-13 JUN-14 DEC-14 JUN-15 DEC-15 JUN-16 DEC-16 JUN-17 2017 6 MONTHLY 2007- 2017 SOURCE REINZ OTAGO MARKET REPORT edition no.2

View online at www.harcourtsotago.co.nz CENTRAL OTAGO MARKET CROMWELL & ALEXANDRA

• Short supply of dwellings key challenge in region The Statistics • Demand increasing faster than availability of property • Market in upbeat mode for medium term CROMWELL OUTLOOK FOR THE REST OF 2017

The Central Otago market is in a positive medium term as the region fails to satisfy upbeat mode with the shortage of listings the rising incoming demand from New Zealand MEDIAN key challenge facing the growing number of nationals. DWELLING PRICE $545,000 motivated buyers. MEDIAN The median section value throughout SECTION PRICE All-time value highs have been recorded Central Otago has been relatively steady $255,000 throughout the region in the first six months all year and many bought sections are due MEDIAN of 2017 with Cromwell’s market in particular to be issued titles this year — reported WEEKLY RENT $470 continuing on a remarkable incline: sale figures do not include non-titled sections. prices hit a record high in June 2017 with a Greater availability is also expected with Median sale prices have been calculated from Jan-June 2017 Source REINZ median of $649,500. Alexandra, meanwhile, new subdivisions in Cromwell releasing started the year with a drop back to the values buildable land in the coming months — the of early 2016 but has recovered impressively six-month median for a section in Cromwell ALEXANDRA OUTLOOK with a value increase rate far superior to is $255,000 and value increases are predicted FOR THE REST OF 2017 that of last year, generating a high six-month to moderate as demand is met. In Alexandra, median value of $382,000. you can expect to pay $169,000 for a section based on the six-month median, increased MEDIAN DWELLING PRICE Lack of housing supply throughout Central from $139,500 in the first six months of 2016 $382,000 Otago is the main contributor to these rising despite this year’s lift in supply. MEDIAN values: just 167 sales were completed in SECTION PRICE $169,000 Alexandra and 135 in Cromwell in the first six After a good summer of wine-making in the months of 2017 which has not come close to region, the viticulture industry is strong and MEDIAN meeting the enduring and persistent interest such property is sought-after, particularly WEEKLY RENT $360 from buyers. We predict the buyer scene will from buyers outside of the region looking to Median sale prices have been calculated from Jan-June 2017 remain highly competitive in the short and move to Central Otago for lifestyle choices. Source REINZ

500 SECTIONS WHERE ARE OUR BUYERS FROM? VOLUME OF SALES DWELLINGS AL CROM 400 OVERSEAS EX W AN EL D L R 300 A REST OF NORTH SOUTH ISLAND ISLAND 200 NUMBER OF SALES LOCAL LOCAL REST OF NORTH 100 SOUTH ISLAND LOCAL ISLAND 0

OTAGO OTAGO JUN-07 DEC-07 JUN-08 DEC-08 JUN-09 DEC-09 JUN-10 DEC-10 JUN-11 DEC-11 JUN-12 DEC-12 JUN-13 DEC-13 JUN-14 DEC-14 JUN-15 DEC-15 JUN-16 DEC-16 JUN-17 6 MONTHLY 2007- 2017 SOURCE REINZ

5 View online at www.harcourtsotago.co.nz DUNEDIN MARKET

• Well-located and good quality property driving overall growth • Lack of alternative living options reducing supply of Dunedin residents rate 88% • Investor confidence predicted to continue in long-term their quality of life as extremely good or good, compared to 81% Dunedin is experiencing its usual slowdown in outperforming the same month last year in across other cities. listing activity in the winter months with a lack of median values. The time property is spending supply currently the key theme, demonstrated on the market is also currently at a median in a 16 per cent drop in completed dwelling sales of just 25 days showing available property is in the first six months of 2017 versus 2016. Last being sold quickly. The strongest demand is year’s LVR alterations and the general election in the $250,000-$500,000 range with investors are new influencers triggering a reluctance to competing with local first home purchasers. bring property to the market, while good rental Student demand will keep driving investor yield and attractive capital growth is seeing confidence in the long-term, particularly with investors choose to hold on to their assets. North Island and overseas students dominating new enrolment at the University of Otago. On top of this, a primary issue in Dunedin is a lack of alternative living options — many are Well-presented, refurbished or new housing unable to identify property of good quality that is preferred throughout the market by those The Statistics is more suited to their needs and so they don’t looking to upgrade or obtain their ideal family sell, limiting options for buyers. This is where we home: such property is likely to continue believe apartment developments could benefit achieving premium prices due to limited OUTLOOK the city — particularly because 28 per cent of availability. This trend also applies to rental FOR THE REST OF 2017 Dunedin households are single person (2013 yields as we’re beginning to see students census) — to free up more family-style dwellings sacrifice campus positioning for better and ensure alternative yet good quality housing standards of accommodation. Multi-offer MEDIAN is available for those who want to downsize. scenarios are particularly common for property DWELLING PRICE $350,000 in desirable locations and the method of auction MEDIAN The good news for sellers is that buyer activity is is gaining traction as sellers seek to achieve the SECTION PRICE $152,501 still very strong and record values are therefore best possible sale value for their asset. being logged. The six-monthly median to MEDIAN June is $350,000 with every month of 2017 WEEKLY RENT $355

Median sale prices have been calculated from Jan-June 2017 Source REINZ WHERE ARE OUR BUYERS FROM? SECTIONS 2000 VOLUME OF SALES DWELLINGS

OVERSEAS

NORTH ISLAND

1500 REST OF SI

1000 OTAGO NUMBER OF SALES LOCAL 500

View online at www.harcourtsotago.co.nz SOUTH OTAGO MARKET

• Largest sales volume in a decade • Capital growth in middle price bracket • Rental stock depleted

South Otago is experiencing a period of strong as a whole recorded an average sale price of growth with the largest sales volume in six $393,450 in June. months since 2007. Although Otago as a whole has recorded a 25 per cent drop in housing stock Rental stock has depleted with investors opting to in June 2017 versus June 2016, South Otago is cash in on first home buyer demand while rental out-performing other areas due to a marked vacancy is extremely low. As such, rental rates are increase in local and first-home buyer activity. creeping up slowly throughout the region and Agriculture, forestry and fishing is are expected to continue rising, particularly in the top industry by employee count Locals are encouraging good capital growth townships such as Balclutha and Milton. in the Clutha District for tidy and well-maintained dwellings in the $200,000-$300,000 bracket, while there’s good demand from first home buyers looking for property priced up to $250,000. New listings are RURAL COMMENTARY highly sought-after with strong initial interest, The Statistics but concern arises if a property has been on In the rural market, the good the market for more than 60 days. This, in turn, economic outlook for the dairy OUTLOOK is making some sellers uncertain as to whether industry is instilling a renewed FOR THE REST OF 2016 they can afford to get their expectations in front confidence in farming property. of the market, limiting the amount of new listings Many rural owners are also looking and causing competitive buying scenarios. to supplement their income with MEDIAN additional offerings such as cafes DWELLING PRICE $176,250 This lack of supply has also driven value growth and farm activities to cater for the over the last year with the six-month median tourism market or installation of MEDIAN SECTION PRICE sale price now $176,250. Despite this, South sustainable energy sources such as $45,000 Otago is still excellent value compared to other solar panels and wind turbines. MEDIAN areas of the country: the provincial South Island WEEKLY RENT $260

Median sale prices have been calculated over a 6 month period

250 WHERE ARE OUR BUYERS FROM? VOLUME OF SALES NORTH ISLAND 200 SOUTHLAND SECTIONS 150 DWELLINGS

100 OTAGO NUMBER OF SALES LOCAL 50

0 JUN-07 DEC-07 JUN-08 DEC-08 JUN-09 DEC-09 JUN-10 DEC-10 JUN-11 DEC-11 JUN-12 DEC-12 JUN-13 DEC-13 JUN-14 DEC-14 JUN-15 DEC-15 JUN-16 DEC-16 JUN-17 6 MONTHLY 2007- 2017 SOURCE REINZ

View online at www.harcourtsotago.co.nz 7 Six offices. One company.

The team behind Otago. Dunedin Balclutha Queenstown Wanaka Cromwell Alexandra

HIGHLAND REAL ESTATE GROUP LTD LICENSED AGENT REAA 2008