Source: MIL-OSI Submissions
New Zealand’s property owners continued to achieve considerable gross profits from the resale of their home or investment property in the three months to September 2021 (Q3), largely due to low levels of supply on the market, high demand and attractive mortgage rates.
CoreLogic NZ’s quarterly Pain & Gain report, released today, found the proportion of properties resold in Q3 2021 for more than the original purchase price was 99.1% – another new benchmark, surpassing the previous peak of 99.0% set in the previous quarter.
CoreLogic NZ Chief Property Economist Kelvin Davidson said in the 25-year history of the Pain & Gain data series, never before have more resellers (in proportional terms) made gross profits.
“It’s certainly been a ‘seller’s market’ in the past nine to 12 months, with the supply/demand balance tight and mortgage rates low,” he said.
“Anybody holding property for the typical seven to 10 years before selling will have had considerable capital gains prior to 2020 to 21 as well – making it almost inevitable that a resale will be at a higher price than previously paid.”
In terms of the scale of profits and losses in Q3 2021, the median resale gain was $363,000, up by $8,000 from Q2’s figure of $355,000. In Q2 2020 that figure was $223,000, illustrating the scale of property value growth in the past 12 months.
By comparison, the median resale loss in Q3 2021 was $35,000, slightly higher than Q2’s ‘pain’ figure of $30,000.
Mr Davidson warned the pace of increase in those profits is starting to slow and as the wider property market cools in 2022 on the back of mortgage rate rises and tighter lending regulation, so too will the ‘gain’ figures in future reports.
“It’s also important to note that for many owner-occupiers, a resale gain does not generally equate to a cash windfall, unless they’re downsizing or relocating,” he said.
“In most cases any equity needs to be recycled straight back into the next property purchase, with ‘trade ups’ more likely to involve higher debt levels in many cases too.”
Median Hold Period
Across New Zealand, properties resold for a gross profit in Q3 2021 had been owned for a median of 7.1 years, down a touch from 7.4 years in Q2 2021, but very much consistent with the figures recorded since early 2018, which have ranged between 7.0 to 7.5 years.
For loss-making resales in the quarter, the median hold period was 3.9 years, which remains unchanged from the Q2 figure, but is higher than the trough of 2.6 years in Q4 2018.
Across the main centres, hold periods for resale gains were generally longer than losses, a reflection that often resale losses could be a result of unexpected/non-market circumstances or forced sales through break-ups or inheritance.
It remains very uncommon for houses – as opposed to flats or apartments – to make a gross loss at resale. Of the houses resold in Q3, 99.4% achieved a price above the previous purchase price. In mid-2001 only 70-75% of house resales made a gross profit, and in early 2011 the figure was 80-85%.
The share of apartments being resold for a gross profit was 94%, slightly down from Q2’s figure of 94.5%. Generally, the share of apartment resales making a gross profit tends to be lower than houses. The Q3 apartment figure was still strong however, up on the 12 months prior, when less than 87% of apartment resales made a gross profit.
Every main centre in Q3 2021 followed the national trend of strong property ‘gain’ and minimal ‘pain’, which is consistent with the nationwide upturn in property values in the past year.
Every property resold in Dunedin in the quarter recorded a price higher than what was previously paid, with no loss-making resales at all. Other main centres recorded a profit-making share of 98.7% or more, with 99% of resales in Hamilton and Wellington making ‘gains’.
Christchurch, which has previously shown significantly weaker profit-making resales, turned a corner in Q3 as 98.7% of properties resold did so for a gross profit. It is the Garden City’s strongest resale figure since Q2 2007.
The most notable gains were made in Wellington, where median resale profits reached a record high of $555,000 in Q3 2021. Auckland had a median resale profit of $505,000, slightly up from the previous quarter’s figure of $500,000.
The size of gains in Tauranga and Dunedin flattened off in the quarter, but Hamilton and Christchurch saw continued growth, although the latter’s median gross profit of $256,000 remains well below the other main centres.
The bulk of the provincial markets had no loss-making property resales at all in Q3 2021, only seeing one or two isolated cases. Mr Davidson said this reflects the property market’s broad-based upswing and common drivers such as a tight supply/demand balance and low mortgage rates.
Pain & Gain Outlook
New Zealand’s property market landscape is changing. In addition to the regulatory changes already made, further credit tightening seems likely next year such as the introduction of further caps to debt to income ratios and an increase in mortgage rates.
There are also some early signs the previously tight supply/demand balance in the market might have started to shift, with listings rising more noticeably. Mr Davidson said a clear property slowdown is looming in 2022, but the headwinds are expected to be a challenge not a crisis for the market.
Pain & Gain Explained
CoreLogic’s Pain & Gain Report is a quarterly analysis of homes which were resold over the previous quarter (excluding leasehold). It compares the most recent sale price to the home’s previous sale price, determining whether the property resold at a gross profit (‘gain’) or gross loss (‘pain’). It provides a proxy for the performance of the housing market and highlights the magnitude of profit or loss the typical seller of a home makes in each area for resales. The data series dates back 25 years.