But latest figures are still well above the post-GFC period
The resale performance of residential real estate has continued to weaken, with 96.8% of property resales making a gross profit in the three months to September, down from the peak of 99.3% in Q4 2021 and the lowest level since Q2 2020 (96.3%), CoreLogic NZ’s latest Pain & Gain report showed.
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Kelvin Davidson, CoreLogic NZ chief property economist, said despite the fall in profit-making resales over the last two quarters, context is important.
“Through 2000 and 2001, it was common for the profit share to be as low as 75%, and in the post-GFC period, that figure was often as low as 80%,” Davidson said. “Clearly, the latest figures are still well above those marks.”
In dollar terms, the median resale profit also remains strong, despite a drop to $331,000 from the peak of $440,000 in Q4 2021.
CoreLogic said the softer performance of property resales in Q3 can be seen across most parts of the country, as well as property type and owner type.
New Zealand’s median hold period for properties resold for a gross profit has remained relatively stable since 2017, at seven to eight years.
In Q3, properties resold for a profit had been owned for a median of 7.7 years – that’s close to Q2’s 7.6 years. Loss-making resales, meanwhile, had the median hold period of just 1.3 years, which was also basically the same as Q2 2022’s figure, and on a par with a long trough seen over 2005-07.
“Anybody who has held for the typical seven-to-eight-year period should still be sitting on large capital gains,” Davidson said. “Putting aside small quarterly shifts, the hold period for profit-making resales has held steady in a long run context, given that in mid-2001 the median hold period for profit was only about 6.5 years, and in 2005-06 it was as low as four years.”
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Profit-making resales for houses dipped below 97.5%, which was the lowest proportion since Q3 2020 but still well above the pre-COVID average. For apartments, however, profit-making resales were steadily falling, from a peak of around 94-95% in 2021 to be 82.4% in Q3, the lowest since Q1 2015.
The median resale profit for houses was $330,000, and $158,000 for apartments. In terms of losses, the median for houses was -$40,000 and -$43,000 for apartments.
“The bulk of those loss-making apartment resales were in Auckland, which is unsurprising given Auckland has the most apartment stock. Wellington also had a handful of loss-making apartment resales in Q3 2022,” Davidson said. “Again, however, context is important. Even though the share of apartment resales being made below the original purchase price has risen, it’s not time to panic. After all, at 17.6%, the figure is still reasonably low by past standards.”
Owner-occupiers saw 97% of resales make a gross profit, down from 98.6% in the June quarter. This was compared to 97.1% of investors, down from 97.6% in the previous quarter. The median resale gain for investors, however, was larger at $337,750, versus $324,000 for owner-occupiers.
“It’s important to note that for owner occupiers these aren’t necessarily windfall gains. After all, their next property will have gone up in value over time too, with their fresh equity just having to be recycled into that next purchase,” Davidson said.
Auckland, Wellington, and Dunedin are showing a bit more weakness compared to the slightly steadier, albeit softening conditions in Hamilton, Tauranga, and Christchurch. Auckland’s share of profit-making resales dropped by 2.6 percentage points quarter-on-quarter to 94.2% – the lowest figure since Q4 2019 – while Dunedin’s was cut by 2.1 percentage points to 96.9%.
Most resellers, however, are still getting a good deal more than what they originally paid – ranging from a gross profit of more than $400,000 in Tauranga, Auckland, and Wellington, down to about $368,000 in Hamilton, and $300,000 or less in Dunedin and Christchurch, CoreLogic data showed.
“As listings and interest rates have risen, mortgage credit has tightened, and property values themselves have dropped, the resale performance across the market has started to weaken more materially,” Davidson said. “While the impact of a downturn will never be immediate on resale performance, simply because of the critical role hold periods play, the impact is still there with gains becoming less common, and certainly the dollar value of those gains falling quite quickly.
“In past downswings, we have seen the profit-making share of resales dip as low as 75-80%. While it’s uncertain if we’ll get there again, historical data suggests that profit-making resales could fall as low as 90% over the coming quarters, potentially even lower, particularly as existing borrowers reprice from previous low rates onto a much higher repayment schedule potentially forcing faster sales.”
