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The Queenstown Lakes District Council hoped to realise in excess of $20 million from the sale of its Commonage land - a 9.5ha block of wilding pines above Vancouver Dr on Queenstown Hill.
It took the land off the market last month after an appeal to the Environment Court supported by a group of seven residents, the majority of whom are co-appellants.
Peter Manthey, a Vancouver Dr property owner speaking on behalf of the group, said: "I don't believe the majority of Queenstown residents realise the extent of the council's proposed development at the top of Queenstown Hill and its ramifications.
"There is obviously a lot of disenchantment with what is happening in Queenstown with overdevelopment and the problems that brings.
"We, as ratepaying residents, I believe, are being forgotten and there will be no turning back or easy fix."
Mr Manthey said one of the council's concept plans, which it has put forward to prospective buyers, shows more than 55 lots and more than a third possibly being unit development.
"There is one road access and no provision for buffer or parkland. Just intensive development in order to maximise the council's sale price."
Mr Manthey said that the council's assertion the area was just covered in wilding pines was incorrect.
"There are a number of other species which we believe as average citizens we would not be allowed to cut down and remove."
The group is working through the issues with council property director Richard Pope.
"We are pleased that the council have withdrawn the property from sale and have indicated that they are prepared to work with us to try and find a satisfactory result.
"As private citizens we don't wish to be drawn into a protracted court situation, however, we feel strongly about the issues and as a group are prepared to follow through until we get a result we are happy with."
A meeting took place recently and discussions are ongoing.
Independent commissioners last year recommended the land be rezoned as medium-density residential.
The council announced in late 2017 it intended to sell the land, which is the last block of 40.47ha vested by the Government under the Queenstown Reserves Vesting and Empowering Act 1971.
The council had previously resolved to sell it to help fund infrastructure.
It went to market, but, last September, following a nine-month marketing campaign, Mr Pope said the sale had not been completed to the council's satisfaction.
That is despite more than 80 inquiries being received by JLL and Luxury Real Estate and five formal offers to buy the land.
It was then put back on the market before being removed because of the appeal.