In June last year, Jim Ribbans finished building his first home in Queenstown, New Zealand’s best-known ski resort, just as the season was opening.
He was planning to use it as a holiday home, renting it for the remainder of the year. But when a local agent told him how much prices had gone up during the pandemic, he put it on the market. Ten days later, a buyer agreed to pay him NZ$5.5mn ($3.42mn), roughly NZ$2mn more than he had spent on buying the land and building the house.
Now Ribbans, who lives in Singapore, is putting those profits towards building a second, larger home near Arrowtown, 15km north-east of Queenstown, even though his builder has warned construction costs have increased 20 per cent. “The plan is to move to New Zealand permanently one day, perhaps five years from now,” Ribbans says.
Queenstown, on New Zealand’s South Island, is remote: nearly 350km from Christchurch, on the edge of Lake Wakatipu. Thanks to its warm summers, mountain views and extensive winter and summer sports opportunities, it is also one of the country’s most expensive places to live.
Since March 2020, supply chain problems and rising materials prices have contributed to an increase in building costs of anywhere between 15 and 40 per cent, according to several builders’ estimates. Nevertheless, an increasing number of those seeking homes in Queenstown are buying a plot of land and building their own home on it, using the services of a local construction company. Between June 2021 and May this year, 1,550 were approved for construction. If approvals continue at the same rate in June, it will be a record year, according to Queenstown Lakes District Council.
From the start of the pandemic until May this year, when the country’s borders started to open again, border closures and heavy restrictions all but ended foreign tourist visits to New Zealand — and overseas holidays by New Zealanders. However, Queenstown’s population — about 50,000 permanent residents, which swells to up to 130,000 in the peak winter and summer periods — grew rapidly during the pandemic.
“When Covid hit I predicted it would fall because tourist jobs would be lost,” Jim Boult, Queenstown’s mayor, says of the town’s population. “Instead, it has grown at an accelerated rate. People moved because it’s a nice place to live — newly retired folk, business owners running their company remotely and so on.”
A flow of visitors year-round outside the winter and summer seasons provides many owners with lucrative short-term rental opportunities when they are not using their homes themselves.
“My initial motivation was the amazing sports — world-class mountain biking, snowboarding and hiking — and I figured I would rent it out to get some return when I wasn’t there,” says Hamish, who chose not to disclose his surname. He built his first home five years ago and, since the start of the pandemic, has divided his time between Queenstown and another home in Christchurch.
But his short-term rental proved so lucrative he built a second home, with three bedrooms, 18 months later. This time, he included a studio flat with a separate entrance, allowing him to visit without disrupting his paying guests. Now he lets both full time.
Hamish favoured modest builds for both of his homes and the first one cost about NZ$400,000. Joe Daly runs Modbox, a local building company, and he estimates that plot-owners who want a standard bungalow on a flat site should budget at least NZ$3,500 per square metre — although higher-spec builds can easily cost double that amount. On a hilly plot, like most of those in the centre of Queenstown, they should budget NZ$4,000-NZ$6,500, he says.
“The build process in New Zealand is not daunting at all. Builders here are pretty straight-up people; the process is strict and regimented. You generally get a result you’re expecting,” says Hamish.
Building in the mountains can be unpredictable, however. Ribbans’ builders discovered an underground spring that had to be diverted around the property, costing an additional NZ$60,000. Following Christchurch’s major earthquake in 2011, all new buildings are subject to stringent strengthening requirements. “Even little garden-retaining walls have to be underpinned to a very high level,” says Daly.
Amanda Richards is a builder working near Castle Hill, a small ski station about 80km from Christchurch, where both land purchases and home building have increased sharply over the past two years. Prices for the wooden frames she uses for most homes, as well as aluminium window frames, have doubled in that period, and waiting times for all materials have increased significantly, she says: “At one point the manufacturers were putting prices up every week.”
But, as in Queenstown, higher costs appear to have done nothing to damp demand for land plots. With the exception of 17 sales of flats in a new apartment complex, all 30 sales in Castle Hill over the past year have been of land plots.
“There isn’t much infrastructure here by way of shops and restaurants, so people tend to buy and build,” says Matthew Loose of Harcourts, a local estate agency. A handful of builders have set up in the area in the past two years to service the new demand, he adds.
Growing demand from buyers — most are from Christchurch, and many are health and medical professionals, according to Loose — has pushed land prices up, he says. “A year ago, I was selling sections [plots] for less than NZ$200,000; recent sales have reached NZ$488,000. One of my clients bought a plot for NZ$189,000 and sold it on, without having built on it, recently for NZ$365,000.”
With the future cost of materials uncertain, few small builders of mountain homes are prepared to fix prices in advance. Daly says that 90 per cent of the homes he built before the pandemic were based on fixed-price contracts; today, not a single one of the 30 homes he is building is subject to such a deal.
Banks are warier about lending money for construction projects where the price is not fixed. And with interest rates rising, Daly believes fewer buyers will start projects until their final cost becomes more predictable.
New Zealand’s central bank rate has risen 1.75 percentage points since October; forecasts it published in May predicted the rate would reach 3.95 per cent next year. In November, new rules restricted the amount of lending the country’s banks can do above a loan-to-value of 80 per cent, which has made these mortgages harder to get.
The median sale price in Queenstown in the three months to May was NZ$1.34mn, up from NZ$1.06mn a year earlier, an increase of 26 per cent, according to the Real Estate Institute of New Zealand.
A Queenstown home remains a pipe dream for the average local resident, according to Boult. “[Price rises] are affecting local families horribly. The average three or four-bed home is just not remotely affordable for them,” he says. Last year, a programme offering subsidised homes for rent and sale provided new homes for 50 households. But the waiting list consisted of 736 households — with a total of 1,805 people — according to Queenstown Lakes Community House Trust.
If built, the 1,550 homes approved since June 2021 will expand Queenstown’s roughly 17,000 households by 9 per cent. The town’s rapid growth is increasing the pressure on roads, sewage and rubbish collection: before the pandemic, Boult was lobbying New Zealand’s federal government to allow a nightly tourist room tax to fund infrastructure improvements.
Although Ribbans is funding his next building project in cash, uncertainties around costs may cause him to delay. “The plan is to get the plans approved then see what the costs are and maybe wait a year,” he says.
But his commitment to a future in the area is undented. The new plot is larger, more remote and flat — which he hopes will avoid the hazards and cost overruns.
“Arrowtown is less touristy, but has an artsy, funky little community. We made a good chunk from the last home, which we’re going to plough back in. This is going to be the dream home.”
What you can buy . . .
Gorge Road, Queenstown, NZ$450,000
A one-bedroom managed apartment three minutes’ walk from central Queenstown. There is an open-plan kitchen/living area, a balcony with mountain views, and the flat is fully furnished. Listed with Harcourts.
Lake Avenue, Frankton, NZ$749,000
A two-bedroom, two-bathroom apartment in Frankton, a suburb to the east of Queenstown. The property is near the shore of Lake Wakatipu and just over 1km from Queenstown airport, which has flights to Australia as well as domestic cities. Available through Harcourts.
Frankton Road, Queenstown, NZ$1mn
A two-bedroom, two-bathroom apartment on the top floor of the Swiss-Belsuites Pounamu development, on one of the main roads through Queenstown. The property has views of Lake Wakatipu from its balcony and full-length windows. For sale with Harcourts Queenstown.
There is no stamp duty in New Zealand on the purchase of land or property.
Unless granted permission by the government, only citizens of New Zealand, Australia and Singapore may purchase residential property in New Zealand.
Direct flights connect Christchurch with Queenstown in 1 hour, Auckland in 1 hour 50 minutes and Sydney in 3 hours 30 minutes.